ibe unit 1

IBE International Business, an overview

Unit 1

Shaheed

Syllabus: Unit 1, IB, An Overview

1. Why Companies Engage in International Business, Modes of IB, External Influences on IB, Evolution of Strategy in the Internationalization Process, Countervailing Forces. 2. Globalization of market, production, R & D and finance. 3. The Cultural Environments Facing Business: Cultural Awareness, Identification and Dynamics of Cultures, Behavioural Practices Affecting Business, Strategies for Dealing with Cultural Differences, Company and Management Orientations, Strategies for Instituting Change.

4. The Political and Legal Environments Facing Business: Basic Political Ideologies, Impact of the Political System on Management Decisions, Formulating and Implementing Political Strategies, Legal Environment. 5. The Economic Environment: An Economic Description of Countries, Key Macroeconomic Issues Affecting Business Strategy, Transition to a Market Economy. 6. The Technological Environment –(in brief)

31 August 2016 IBE Unit 1 2

Syllabus: Unit 1, IB, 1.1

1. Why Companies Engage in International Business, Modes of IB, External Influences on IB, Evolution of Strategy in the Internationalization Process, Countervailing Forces.


What is IB?

IB consists of transactions

that are devised (planned) and

carried out (implemented/executed)

ACROSSnational borders (countries, continents, regions)

to satisfy

the objectives of individuals, companies, and organizations.


What is IB?

The term "international business" refers to all thosebusiness activities which involve cross-bordertransactions of goods, services, resources betweentwo or more nations.

Transactions of economic resources include capital,skills, people etc. for international production ofphysical goods and services such as finance, banking,insurance, construction etc.

Source: Rakesh Mohan Joshi (2009) International Business, Oxford University Press, ISBN 0-19-568909-7


What is IB?

IB comprises all commercial transactions (PRIVATEand GOVERNMENT, Sales, investments, Logisticsand transportation) that take place between two ormore regions, countries, nations beyond theirpolitical boundaries.

Usually private companies undertake suchtransactions for profit; Government undertakethem for profit and for political reasons.

Source: Daniels, J., Radebaugh, L., Villarreal, D. (2007). International Business: environment and operations, 11thedition. Prentice Hall. ISBN 0-13-186942-6


What is IB? (www.forbes.com)


Why Companies/countries Engage in IB? (generic view)

1. Natural Resources andGeographical Factors: Availability ofresources and location. Supply chainmechanism. Oil (GCC), Tea (India and SriLanka), Textiles (Bangladesh), ElectronicProduction (China)

2. Occupation Distribution: Based onAgriculture, Industrialization, Diary,Defence etc. Industry (Germany),Agriculture (India)

3. Means of Transportation: Primarilyto do with connectivity, access, timelines,Supply Chain Management and themechanism’s. BPO/Call center (India andthe Philippines), mass production (China)

4. Large-scale Production: Bringsabout Economies of Scale and thenuance of specialization. Surplus getsexported. Off course today, production ismoved to the location.

5. Cost differential (cost ofproduction): Cost effectivity vis-à-visoutsourcing, off shoring, near shoring.Comparative Cost Advantage (CCA).

6. Degree of Self-sufficiency:Countries that cannot produce, or can doso at a high cost invariably import incomparison to the countries that are self-sufficient. Todaycost arbitrage (CCA).


Why Companies/countries Engage in IB? (generic view)

Proactive Motivations

• Profit advantage

• Unique products

• Technological advantage

• Exclusive information

• Tax benefit

• Economies of scale

• Ease of doing Business

Reactive Motivations

• Competitive pressures• Overproduction• Declining domestic

sales• Excess capacity• Saturated domestic

markets• Proximity to customers

and ports


What is IB? (Can this be true)


EXPORTING

INTERNATIONAL

CONTRACTING

INVESTMENT

Joint Venture

Greenfield

M&A

Licensing

Franchising

Contract manufacturing

Management contractTurnkey projects

Indirect export

Direct export

Internet Entry

B2B

B2C

With the channels

of International

Express

Modes of IB. (Entry)


Modes of IB? (Entry) (Investment)

1. Investment:1.1 Joint Venture (JV): is a business entity created by two or moreparties, generally characterized by shared ownership, shared returnsand risks, and shared governance.1.2 Greenfield: the term greenfield project is used in many industries,including software development where it means to start a projectwithout the need to consider any prior work. (Brownfield: alreadyused)1.3 M&A: are transactions in which the ownership of companies, otherbusiness organizations or their operating units are transferred orcombined. As an aspect of Strategic Management, M&A can allowenterprises to grow, shrink, change the nature of their business orimprove their competitive position.


Modes of IB? (Entry) (International Contracting)

2. International Contracting:2.1 Licensing: Licensing is the process ofleasing a legally protected (that is,trademarked or copyrighted) entity – aname, likeness, logo, trademark, graphicdesign, slogan, signature, character, or acombination of several of theseelements. The entity, known as theproperty or intellectual property, is thenused in conjunction with a product.Many major companies and the mediaconsider licensing a significant marketingtool.2.2 Franchising: is the practice of theright to use a firm's business model andbrand for a prescribed period of time.

2.3 Contract Manufacturing: Productionof goods by one firm, under the label orbrand of another firm.2.4 Management Contract: is anarrangement under which operationalcontrol of an enterprise is vested bycontract in a separate enterprise thatperforms the necessary managerialfunctions in return for a fee. can involvea wide range of functions, such astechnical operation and of a productionfacility, management of personnel,accounting, marketing services andtraining.2.5 Turnkey Projects: is a type of projectthat is constructed so that it could besold to any buyer as a completedproduct. (BOT, BOOT, BOLT etc)


Modes of IB? (Entry) (Internet)

3. Internet Entry:

3.1 B2B: Business to Business: refers to a situation where onebusiness makes a commercial transaction with another. (WholesellerRetailer). {Alibaba Business. Metro Consumers}

3.2 B2C: Business to Consumers: transactions conducted directlybetween a company and consumers who are the end-users of itsproducts or services. (Amazon/Flipkart Consumers)

3.3 C2C: Consumer to Consumer: business model that facilitatesan environment where customers can trade with each other.www.junglee.com eBay, Quikr


Modes of IB? (Entry) (Exporting)

4. Exporting:

4.1 Indirect: means selling to anintermediary, who in turn sells yourproducts either directly to customersor to importing wholesalers. Theeasiest method of indirect exportingis to sell to an intermediary in thecountry. When selling by thismethod, the entities/producersnormally are not responsible forcollecting payment fromthe overseas.

4.1.1 Export Management Company(EMC): will work for any entity.

4.1.2 Export Trading Company(ETC): are more specific toparticular products and specificcustomers

4.2 Direct: a company sells itsproducts directly to customers inanother country without usinganother person or organization tomake arrangements for them.The direct export of goodsinvolves certain procedures,which must be adhered to.


External Influences on IB. (1/3)

1. Changing nature of markets (Globalization): Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. Globalization has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world.

2. Economic:

3. Financial• Deregulation by government –

market oriented approach• New banks and financial institutions• International sources of finance• Technology allows for new products



4. Geographic Based on local requirements

Demographics/population

Birth Rates

Ageing Population

5. Social/people Societal obligations

Understanding of Workforce and the work ethics in the country

Social Impact Assessment (SIA)

6. Ethical Morals and values

Corruption

Corporate Governance

7. Environmental Peoples ability to adhere to

International norms viz., Carbon Footprint

Environmental impact assessment (EIA)



8. Political/Government Government brings in stability in

the Economy

Creates Rules and Regulations

Ease of doing business

9. Technological Adherence to the norms of

technology

eGovernance

10. Legal/Rules Deregulation of rules,

Making business attractive,

Simplification of business functioning

Tax norms

Tax Havens

Retrospective Legislation

Tax Inversions


Evolution of Strategy in the Internationalization Process (UPPASALA INTERNATIONALIZATION PROCESS MODEL)

• Jan Johanson and Jan Erik Vahlne (1977) introduced the Uppsala(University in Sweden) internationalization stages model or U-model, inwhich a firm utilizes high control modes when its knowledge of foreignmarkets is low and when it achieves more experience and maturity.

• Firms first gain experience from the domestic market before they move toforeign markets; firms start their foreign operations from culturally and/orgeographically close countries and move gradually to culturally andgeographically more distant countries; firms start their foreign operationsby using traditional exports and gradually move to using more intensiveand demanding operation modes (sales subsidiaries etc.) both at thecompany and target country level.


Evolution of Strategy in the Internationalization Process (UPPASALA MODEL)


Ad Hoc Exporting

Agents

Own sales organization

Manufacturing in Foreign market

Sales

Tim

e

The Establishment Chain

Uppsala New Strategy, the evolution


Countervailing Forces (Framework source: www.slideshare.net)

1. Countervailing Forces (CF) Model is oneamong the models of BusinessGovernment and Society (BGS)theories.

2. CF Suggests exchanges of power amongeach variable, attributing constantdominance to none.

3. This is a model of multiple forces.

4. It differs from the dominance model(Biz and Govt. DOMINATE over thepeople. The other models beingStakeholder Model and MarketCapitalism) in rejecting an absoluteprimacy of business and crediting morepower to a combination of forces andinteractions rendered paltry by thedominance model.

5. There are checks and balances.


Countervailing Forces

Conclusions for CF:

1. Business is deeplyintegrated into an opensociety and must respondto many forces, botheconomic andnoneconomic

2. Business is a majorforce acting ongovernment, the public,and environmental factors

3. To maintain broadpublic support, businessmust adjust to social,political, and economicforces it can influence butnot control

4. BGS relationshipsevolve as changes takeplace in the ideas,institutions, and processesof society


Syllabus: Unit 1, IB, An Overview (1.2)

2. Globalization of market, production, R & D and finance.

(NOTE: This part of the curriculum comes underthe aspect of DRIVERS OF GLOBALIZATION)


Drivers of Globalization Thence it can be said that

TWO Macro Factors underliethe trend towards GREATERGlobalization.

So what are the TWOfactors?

1. Decline in BARRIERS to theFREE FLOW of GOODS,SERVICES and CAPITAL

2. TECHNOLOGICAL change.

Lets Recall:1. Globalization is ongoing.

2. Regional Economies, Cultures, Societies, become INTEGRATED because of TRADE and COMMUNICATION.

3. National Economies (Ex. India) get INTEGRATED on account of Foreign Direct Investment (FDI), Foreign Institutional Investors (FII), Domestic Institutional Investors (DII), International Trade, Migration of People, Technology upgradation


Drivers of Globalization

What then are the components of the Drivers of Globalization?

I. Globalization of Market (GoM)

II. Globalization of Production (GoP)

III. Globalization of Investment (GoI)

IV. Globalization of Technology (GoT)



Globalization of Market (GoM)


Drivers of Globalization(Globalization of Market - GoM)

What then is Globalization of Markets?The merging of distinctly separatenational markets into a globalmarketplace.

1. Tastes and preferences convergeonto a global norm

2. Firms offer standardized productsworldwide creating a worldmarket

NOTE: There are differences in theNational Markets and one needs toStrategize effectively.

• Countries are different (what you do in one need not be replicated, they are unique)

• Range of problems are wider and more complex

• Government intervention in trade and investment creates problems (ex: China, India, USA, UK, Germany, Brazil)

• International investment is impacted by different currencies (€ ₹ ₤ ¥ $)



Features of GoM

1. The size of the company need not to be large to create a global market. Even small companies can create a global market. (WhatsApp/Small; Walmart/Large).

2. Distinction of Global Markets Distinction in Strategies for each Market. (McDonald selling Soup in China and Taiwan, no beef in India)

3. The global business firms compete with each other frequently in different national markets including their home markets (Google and Yahoo).

4. Foreign Markets are meant for non-consumer good (Machinery, raw materials, software etc.) and consumer goods.



Reasons for GoM1. IndustrializationMass Production.2. Companies globalize in order to increase their

profits and achieve company goals of enlargingbusiness + Profits.

3. Company in order to reduce the risk diversifythe portfolio of countries and theproducts/services.

4. To cater to the demand for the product/servicesin foreign markets.



Globalization of Production (GoP)


Drivers of Globalization(Globalization of Production - GoP)

What then is Globalization of Production?Refers to sourcing of goods and services from locations around the world to take advantage of

Differences in cost or quality of the factors of production:

i. Labor

ii. Land

iii. Capital

Factors influencing the location of manufacturing facilities vary from country to country. They may be more favorable in foreign countries rather than in home country.

Think and relate of the Economic Theories of to GoP:

1. Comparative Cost Advantage (David Ricardo)

2. Absolute Advantage theory (Adam Smith/Labour)

3. Michael Porters Theory of National Advantage


Drivers of Globalization(Globalization of Production - GoP)

Reasons for GoP1. Imposition of restrictions on imports by the

foreign countries forces the MNC’s to establishmanufacturing facilities in other countries.(Protectionism)

2. Availability of high quality raw materials locally.3. Availability of inputs at low cost in foreign

countries, Labour, infrastructure.4. To reduce the cost of transportation and easy

logistic management. (today is key to GoP).



Globalization of Investment (GoI)


Drivers of Globalization(Globalization of Investment - GoI) {Finance}

What then is Globalization of Investment?International investment is a powerful force propelling the world toward closer Economic Integration. GoI can alterentire methods of production through transfers of knowledge, technology, and management techniques. (Levin Institute)

(Source: www.globalization101.org)



Reasons for GoI

• There has been a rapid increase in globalization.

• Many countries provided more congenial environmentfor attracting direct investment. Countries havebecome very liberal and allow entities to invest.

• Limitations of exporting and licensing force thedomestic companies to enter foreign markets throughFDI.

• Global companies in order to have the control overmanufacturing and marketing activities, invest inforeign countries.



GoI CATEGORIES:1. Commercial Loans: bank loans issued to foreign businesses or governments.2. Official Flows: of development assistance that developed nations give to

developing ones. (USAID).3. Foreign Direct Investment (FDI): is controlling of ownership in a business

enterprise in one country by an entity based in another country. FDI includes M&A, building new facilities, reinvesting profits earned from overseas operations and intra company loans.

4. Foreign Portfolio Investment (FPI): is the entry of funds into a country where foreigners deposit money in a country's bank or make purchases in the country’s stock and bond markets, sometimes for speculation.

5. Foreign Institutional Investors (FII): an institution established or incorporated outside India which proposes to make investment in securities in India. (Section 2 (f) of the SEBI (FII) Regulations 1995). {investor or investment fund registered in a country outside of the one in which it is investing. Institutional investors most notably include hedge funds, insurance companies, pension funds and mutual funds}.



Globalization of Technology (GoT)


Drivers of Globalization(Globalization of Technology - GoT) (R&D)

What is Globalization of Technology?

Think of these items:1. Microprocessors and

telecommunication

2. The Internet and world wideweb

3. On-line globalization

4. Transportation technology

Technology has changed the way in which we communicate, work, play and even the way in which we take and teach classes; and the way we gather information.

Today it is all about DIKW:Data, Information, Knowledge and Wisdom



GoT, Internet of Things (IoT)1. IoT is basically connecting any device with an on and off switch to the Internet

(and/or to each other). This includes everything from cellphones, coffee makers, washing machines, headphones, lamps, wearable devices and almost anything else you can think of. This also applies to components of machines, for example a jet engine of an airplane or the drill of an oil rig.

2. If it has an on and off switch then chances are it can be a part of the IoT. 3. The analyst firm Gartner says that by 2020 there will be over 26 billion

connected devices… That’s a lot of connections (some even estimate this number to be much higher, over 100 billion).

4. The IoT is a giant network of connected “things” (which also includes people). The relationship will be between people-people, people-things, and things-things.

(Source: http://www.forbes.com/sites/jacobmorgan/2014/05/13/simple-explanation-internet-things-that-anyone-can-understand/#d8118d968284 accessed and retrieved on 25th July, 2016)


http://www.forbes.com/sites/jacobmorgan/2014/05/13/simple-explanation-internet-things-that-anyone-can-understand/#d8118d968284

Drivers of Globalization(Globalization of Technology - GoT) (R&D) (IoT) (source: www.linkedin.com)


Drivers of Globalization(Globalization of Technology - GoT) (R&D) (IoT)(Source: https://www.youtube.com/watch?v=LVlT4sX6uVs)



GoT, Methodology:• Companies with the latest technology acquire distinctive competencies

and gain the advantages of producing high quality products at low cost.(Samsung. Cost of Mobiles, TVs)

• Companies may have technological collaboration with the foreigncompanies through technology which spreads from country to country.(Assembly of APPLE phones)

• The foreign companies allow the companies of various other countriesadopt their technology on royalty payment basis or on outright purchasebasis.

• Company also globalize the technology through the modes of jointventures (JV) and M&A. Sharing of technology.

• Discovery of new Technologies (Nanotechnology, Printing techniques).

• Innovation, Research, Patents.


Syllabus: Unit 1, IB, An Overview (1.3)

3. The Cultural Environments Facing Business: Cultural Awareness, Identification and Dynamics of Cultures, Behavioural Practices Affecting Business, Strategies for Dealing with Cultural Differences, Company and Management Orientations, Strategies for Instituting Change.


A tryst with Culture

Hand shake (source: International Management: Culture, Strategy and Behaviour, Hodgetts, Luthans and Doh McGraw

Hill, 6 edition)


Culture Type of Handshake

USA Firm

Asian Gentle (shaking hands is unfamiliar and uncomfortable for some)

British Soft

French Light and quick (not offered to Superiors) {repeated on arrival and departure}

German Firm and Bursk. Repeated on arrival and departure

Latin America Moderate grasp; repeated frequently

Middle Eastern Gentle

A tryst with Culture

Symbols (source: International Management: Culture, Strategy and Behaviour, Hodgetts, Luthans and Doh McGraw Hill, 6

edition)


A few terms

Culture: Learned norms based on values, attitudes,

and beliefs of a group of people.

Cultural Diversity: A means of gaining global

competitive advantage by bringing together people of

diverse backgrounds and experience.

Cultural collusion: Occurs in international business when:

– A company implements practices that are less effective

– Employees encounter distress because of difficulty in accepting or adjusting to foreign behaviors

(Source: International Business Environment and Operations, 13th edition)


IB Corporate issues

Problems within International Business when:– Employees have subconscious reactions

– Employees assume all societal groups are similar

– A company implements practices of work less well than intended (work life balance)

– Employees encounter distress because of an inability to accept or adjust to foreign cultural behaviors

– Companies/employees are insensitive to foreign consumer preferences


Cultural Awareness(taken from various Editions of IB, John Daniels (et. al.)


Problems that hinder

cultural awareness

1. Subconscious reactions to circumstances

2. Assumption that all societal subgroups are

similar

Cultural awareness

can be improved

1. Research descriptions of specific cultures

2. Observe behavior of respected foreign nationals

3. Study foreign market directly

Company’s need for

cultural knowledge

increases as it

1. Moves from one to multiple foreign functions

2. Increases the number of countries in which it

operates

3. Moves from similar to dissimilar foreign

environments

4. Converts from external to internal handling of

international operations

Identification and Dynamics of Culture(taken from various Editions of IB, John Daniels (et. al.)

1. Cultural formation and dynamics

1.1 Value systems set early in life, but may change

1.2 Values may change due to choice or imposition

1.3 IB increases change in cultures and governments

2. The nation as a point of reference

2.1 Each nation has certain human, demographic, and behavioral Characteristics that give it a national identity

–people share values, language, and race

2.2 Laws governing business apply along national lines

2.3 Problems using a country-by-country approach

–individual differences within a country

–similarities link groups from different countries


Identification and Dynamics of Culture(taken from various Editions of IB, John Daniels (et. al.)

3. Religion as a cultural stabilizer

3.1 Religion has a strong

influence on values

3.2 Specific beliefs may affect

business

–not all nations that practice the

same religion have the same

constraints on business

–where rival religions vie for

political control, resulting strife

may disrupt business

4. Language as a cultural stabilizer

4.1 Culture spreads rapidly when

people from different areas

speak the same language

4.2 Stronger adherence to a

culture if it does not share its

language with other people

4.2.1 English, French, and

Spanish are widespread. (Middle

East Arabic is prevalent, but

one needs to watch out for the

dialects and variation among

nations)


Behavioural Practices Affecting Business (1/4)(taken from various Editions of IB, John Daniels (et. al.)

1. Social stratification systems (Culture systems in countries)

1.1 Every culture values some people more than others, thereby dictating social class or status

1.2 Ascribed group membership based on:

–gender, family, age, and caste

–ethnic, racial, or national origin

1.3 Acquired group membership based on

–religion, political affiliation, and professional and other associations

1.4 Characteristics that affect status differently from country to country include

–Competency of the individual

–gender-based groups

–age-based groups

–family-based groups

–occupation



2. Motivation (countries vary in people’s motivation to work) {work

smart, work hard}

2.1 Materialism and leisure

–countries differ in emphasis on materialism

–Protestant ethic—work a means to salvation (Protestant Ethic and

the rise of Capitalism)

–most people consider economic achievement to be commendable,

regardless of culture

2.2 Expectation of success and reward— people are more eager to

work if:

–rewards for success are high

–there is some uncertainty of success



3. Masculinity index (degree of admiration for success, sympathy for unfortunate, preference for being better than others) {totally male dominated}

3.1 High masculinity cultures

–roles differentiated by gender (Male v/s Female)

–men should (will) dominate (Russia, Saudi Arabia, Yemen, some countries in the African continent)

3.2 Low masculinity culture (opportunity for all)

– need for smooth social relationships

– employee and social welfare has higher priority than growth and efficiency



4. Need hierarchy—lower-order

needs must be fulfilled prior to higher-

order needs

4.1 Workers in poor countries

motivated by lower-order needs

4.2 People from different countries

may rank needs differently

[NOTE: Maslow felt that unfulfilled

needs lower on the ladder would

Inhibit/stop the person from climbing

to the next step.]

Abraham Maslow Hierarchy


Strategies for Dealing with Cultural Differences(taken from various Editions of IB, John Daniels (et. al.)

1. Making little or no adjustment

1.1 Host cultures do not always expect foreigners to adjust to them

1.2 Less adjustment necessary when moving to a country with

a similar culture

2. Communications

2.1 Spoken and written language

• Difficult to directly translate one language into another

2.2 Silent language

• Color associations (dress sense), sense of appropriate distance (understanding of miles/km), time and status cues, and body language (very valid)

3. Culture Shock (see next slide for more on Culture shock)

Frustration from having to learn to cope with new cultural cues and

expectations


What is Culture Shock? (1/3) (add on info’)

• Culture shock is the personal disorientation aperson may feel when experiencing an unfamiliarway of life due to immigration or a visit to a newcountry, a move between social environments, orsimply travel to another type of life.

• One of the most common causes of culture shockinvolves individuals in a foreign environment.Culture shock can be described as consisting of atleast one of four distinct phases: honeymoon,negotiation (frustration), adjustment, andadaption (mastery).


What is Culture Shock? (2/3) (add on info’)

Honeymoon

Negotiation (frustration)

Adjustment

Adaption (mastery)

• Old New, shortperiod

• About 3 months. Old New creates anxiety.Language barriers etc.

• 6-12 months.Accustomed to newculture.

• Complete control ofnew culture


What is REVERSE Culture Shock? (3/3) (add on info’)

• Re-entry Shock or own culture shock. (when one

goes back to ones country)

• Reverse culture shock is generally made up oftwo parts: idealization and expectations.

Idealization: we only recall the good of the past,and try to avoid the bad.

Expectation: we expect all aspects to remain thesame, as we have left.


Company and Management Orientations

Howard V. Perlmutter (1969) through an article: "The TortuousEvolution of Multinational Enterprises“ introduced the EPG model asInternational Business Strategy, wherein the costs or benefits areimpacted:

Ethnocentric: Ethnocentrism is characterized by or based on the attitudethat one's own group is superior to others. A view that a particular ethnicgroup's system of beliefs and values is morally superior to all others. {tunnelvision} [Home Country oriented] (Infosys, Airtel) (developing/emerging nations)

Polycentric: Home office loses control on other entities; there will bedecentralization. (Host Country oriented) (has a balance) (Internationalize)

Geocentric: Global Orientation, totally based on Geography, focus on R&D. There is no bias between Home and Host. (IBM, Accenture, Shell)

Wind, Y., Douglas, P.S., Perlmutter, V.H. in 1973 added REGIOCENTRIC a global company with Regional Headquarters (MacDonald, IKEA, even IBM, BMW)


Strategies for Instituting Change (1/2)

1. Value system

•The more a change upsets, important values, the more resistance it willengender

2. Cost benefit of change

•Company must consider the expected cost-benefit relationship of anyadjustments it makes abroad (engaging in countries where labor is cheap)

3. Resistance to too much change

•Resistance to change may be lower if the number of changes are less

•Make fewer demands at one time and phase/bring in policies slowly (noretrospective changes)

4. Participation

•Discussing proposed change with stakeholders in advance may reduce resistance(advance information)

•Participation must not violate prevailing value system (as there will be anagreement)


Strategies for Instituting Change (2/2)

5. Reward sharing

•Employees are more apt to support change when they expect personal orgroup rewards (organization and management are supported)

6. Opinion leaders

•Should be convinced first about benefits of change (convince the leaders)

•Can help speed up the acceptance of change (leaders will help usher inchange)

7. Timing

•Change should be timed to occur when resistance is likely to be low(stakeholders will accept easily)

•Must attend to attitudes and needs of culture

8. Learning abroad

•International companies should learn things abroad that they can apply athome (sharing of best practices)


Syllabus: Unit 1, IB, (1.4)

4. The Political and Legal Environments Facing Business: Basic Political Ideologies, Impact of the Political System on Management Decisions, Formulating and Implementing Political Strategies, Legal Environment.


The Political and Legal Environments Facing Business(taken from various Editions of IB, John Daniels (et. al.)

The Political Environment– The role of the political system is to

1.integrate the society

2.Influences how business is conducted (within and outside)

– Political process functions

• Interest articulation (what they would like to do)

• Interest aggregation—the collection of interests in the political

system

• Policy making (macro and micro)

• Policy implementation and adjudication

– MNE (Multinational Enterprise) management

• Lobbies governments on policies that affect business

• Avoid appearances of inappropriate influence on the law



Basic Political Ideologies– Political ideology—a body of constructs, theories, and aims that

constitute a sociopolitical program

• Pluralist society—different ideologies coexist because there is no one ideology accepted by all (opinion for all) {all have a view}

• Ultimate test of any political system is its ability to hold a society together despite pressures from different ideologies

• Ideologies also help bring countries together

– The impact of ideological differences on national boundaries

• Differences in political ideology have affected boundaries (Example: in Europe) (Communist East Europe)

• When operating in a foreign country, must understand the potential sources of political tension and instability (Huwaei) (APPLE and India)




ToalitarianismDemocracyDemocraticGovernment

Non- Democratic

GovernmentDemocracy Totalitarianism


A Political Spectrum– Democracy—involves wide participation by citizens in the decision-making

process

• Freedom of opinion, expression, press, and freedom to organize

• Election of political representatives

• Limited term of elected officials

• Independent and fair court system

• Nonpolitical bureaucracy and defense infrastructure

• Accessibility to the decision-making process

– Democratic governments differ

• Presidential versus parliamentary (US v/s India, UK, Australia)

• Number of important political parties (Multiple, Two)

• Amount of citizen participation in decision making (Switzerlandrecall)

• Fragility and stability of new democracies

Democracy believed to be the best form of government



A Political Spectrum (cont.)– Totalitarianism—a single party, individual, or group of individuals

monopolizes political power

• Neither recognizes nor permits opposition

• Theocratic—religious leaders are political leaders

• Secular—government often imposes order through military power

• Totalitarianism takes several forms

– Fascism—desires to control people’s minds and souls, converting them to its own faith

– Authoritarianism—desires to control the people

– Communism—political and economic systems are virtually inseparable

» equal distribution of wealth

» government ownership and control of resources



Impact of the Political System on Management Decisions

– Political Risk—caused by political instability

• Promotes fear that operating position will deteriorate

• Tends to be higher in totalitarian regimes

– Causes of political risk

• Change in the opinions of political leadership

• Civil disorder stemming from economic conditions, human rights violations, or group animosity

• External relations—animosity between host country and foreign investor’s country

– Types of political risk

• Micro—political actions are aimed at specific foreign investments

• Macro—political actions affect a broad spectrum of foreign investors



Government Intervention in the Economy– Individualistic paradigm

• Belief in minimal government intervention in the economy

• Likely to be democratic and economically free

• Promotes marketplace competition

– regulates marketplace when competition by itself is unreliable or unacceptable

– Communitarian paradigm (Community based)

• Government tends to be prestigious

– thrives on a respected, centralized bureaucracy

• May be democratic or authoritarian

– stable political party or coalition in power

• Government may start partnership with business

– Government action toward business is not always consistent



Formulating and Implementing Political Strategies

– Establishing a political strategy in the host country

• Identify the issue

• Define the political aspect of the issue

• Assess the potential political action of other companies and special-interest groups

• Identify important institutions and key people

• Formulate strategies

• Determine the impact of implementation

• Select the most appropriate strategy and implement

– Implementing a strategy—marshal whatever resources necessary to accomplish the company’s goals

• Lobbyists educate and persuade government decision makers

• Enlist support of consumers



Kinds of Legal Systems

– Common law—based on tradition, precedent, custom, and usage

• Interpretation by the courts

– Civil law—codified legal system

• Based on a detailed set of laws that make up a code

• Rules for business transaction included

• Based on how the law is applied to the facts

– Theocratic law—based on religious precepts

• e.g., Islamic law (Shariat)

– has remained frozen

– moral rather than commercial law

– intended to govern all aspects of life

– Consumer safeguards—differ in different legal systems (COPRA, 1986)

• Deal with product liability issues



Legal Issues in International Business– Affect many aspects of IB

– National laws

• May affect both domestic and foreign companies operating within the country’s borders

– health and safety standards

– employment practices

– antitrust prohibitions

– contractual relationships

– environmental practices

– patents and trademarks

• May govern cross-border activities

– investment of capital

– payment of dividends to foreign investors

– customs and duties on imports



5. The Economic Environment: An Economic Description of Countries, Key Macroeconomic Issues Affecting Business Strategy, Transition to a Market Economy.


ECONOMIC DESCRIPTIONOF NATIONS

Capitalism (Market economy)

Socialism(mixed economy)

Communism(Command economy)

OWNERSHIPAND CONTROL

COMPETITION

STANDARD OF LIVING

•Individuals control means of production•Market determines what goods will be sold at what price•Laissez faire

•Competition keeps prices low and quality high

•high standard of living and economic security•Individuals free to earn profits, but may risk losses

•Basic means of

production owned and

managed by government

•Private ownership, with

regulation, of businesses

Cooperation stressed

over competition

•high standard of living

and economic security

•High taxes provide

free health care and

education

Government owns means

of production

Government determines

what goods will be sold at

what price

No competition, lower

quality goods

Goal is equality for

everybody, enforced by

the government

The Economic Systems/Environments (Source: IB, Competing in the Global Marketplace, 6e, Charles WL Hill and Arun K Jain)

3 types of Economic Systems:

1. Market Economy

2. Command Economy

3. Mixed Economy


The Economic Systems/Environments (Market Economy) What is produced & in what

quantity is determined by supply/demand and signaled to producers through a price system

Resources are primarily owned and controlled by the private sector, not the public sector

Consumer sovereignty is the right of consumers to decide what to buy

Companies have the ability to decide what to produce and in which market to compete

Prices are determined by supply and demand

Laissez-Faire Economics


Preserving

Property

Rights

Enforcing

Antitrust

Laws

Providing a

Stable Fiscal

& Monetary

Environment

Preserving

Political

Stability

The Economic Systems/Environments (Command Economy)

Central planning failed to:

Create economic value

Provide incentives

Achieve rapid growth

Satisfy consumer needs

Centrally planned by government

All dimensions of economic activity, including pricing and production decisions, are determined by a central government plan

Government owns and controls all resources

Prices are determined by government

Welfare of the group is paramount

Economic and social equality is the goal


The Economic Systems/Environments (Mixed Economy)

A balance of both Market and Command Economy

Some degree of government ownership and control

The goal is to achieve low unemployment, low poverty, steady economic growth and equitable distribution of wealth.

No economy is purely market or command

Economic systems are along a spectrum of freedoms (in India, Central and State Govt)

Most command economies are moving towards a market economy



6. The Technological Environment – (in brief)


Technological Environment

What is technology?

– knowledge, tools, techniques, and actions

• used to transform material , information, and other inputs into finished goods and services

– plays pivotal role in creating and changing an organization/countries task environment


Technological Environment

Role in Strategy :

creates strategic options not feasible with older technologies #approaching those of traditional large-scale manufacturing facilities

marketing over the internet

online, real-time financial management systems#can determine profit and loss on a daily basis

improved access to services (e.g. Banking)


Technological Environment, framework


ibe unit 1

Education