DIMENSIONS OF

INTERNATIONAL
BUSINESS
ENVIRONMENT
 Learning points
 To provide an overview of the functional
dimensions which shape the organization within
the international business environment
 To address the specific aspects of the different
areas of management in the international context
 To develop an awareness of the impacts of the way
in which organizations respond to challenges within
each functional area upon a variety of stakeholders
Functional dimensions
 Operations and supply chain management
 Marketing
 Human resource management (HRM)
 Accounting and finance
 Innovation / Research and Development
Operations and supply chain management (1)
 Organizations aim to configure the supply chain in such a
way that it enables them to reduce the costs of production
and to improve efficiency
 Outsourcing some of the value-adding activities is seen as
allowing greater flexibility and the ability to concentrate key
resources on what the firm considers as its core
competence
 Companies are able to switch suppliers and obtain the most
advantageous cost structures for materials and components
 Reduction in the cost of resources such as labour, raw
materials, energy (e.g. oil) and finance (e.g. global credit)
can all be achieved. This does mean that the operations
function becomes increasingly dependent on global factors
(e.g. in the market for credit, or in rising oil prices).
Operations and supply chain management (2)
 Advances in transportation in the last half century,
e.g. containerization, bulk sea transportation and
the growth of mass air transportation, have had a
great impact upon the international business
environment
 Information Communication Technologies (ICTs)
help to facilitate the flow of materials, services and
information
 In the contemporary world, networks of suppliers of
materials, components and knowledge providing
input to products and services are geographically
dispersed
 E.g. Big Mac as a global product
Operations and supply chain management (3)
 Relationships within supply chains are not
necessarily formed by equally independent
economic agents
 E.g. MNEs vs. local suppliers
 The freedom to choose the most economically
efficient way of configuring the supply chain at a
global level enables companies to transfer value-
adding activities rapidly from one country to another
 Companies do not need to take into account the
economic and social consequences their strategic
moves have on the affected countries
 E.g. ‘sweat shop labour’, ‘race to the bottom’, and
ethical issues concerning EPZs
 Marketing (1)
 ‘A social and managerial process by which individuals and
groups obtain what they need and want through creating and
exchanging products and value with others’ (Kotler et al.,
2002: 5)
 International marketing research is aimed at finding out about
consumer attitudes that are shaped by the language, religion,
values and the norms of social behaviour of different cultures.
These attitudes can also reflect underlying economic
conditions.
 Marketing also constrained by the legal and political
environment. Regulation can be found either at the national
level or through international agreement.
 These factors affect decisions regarding the extent to which
the elements of the marketing mix (product, price, promotion
and distribution) will be standardized across markets or
adapted to suit local conditions
 Marketing (2)
 Critiques of the marketing concept
 Characteristics of age, gender, race and income
can become ‘issues’ to be addressed in the
marketing design – either as problems to be
overcome or as opportunities to be exploited
 Problems with the assumption that through
addressing people’s needs and wants, marketing is
doing ‘good’ for them and that it has, therefore,
some ethical basis. Western corporations accused
of ‘cultural imperialism’.
 E.g. cigarettes, fast food (e.g. the ‘McLibel’ case)
 ‘Societal marketing’ as a response to critiques of
mainstream marketing
 Human resource management (1)
 Employment legislation differs between countries,
but typically spells out the duties of business with
respect to: health & safety at work, working hours,
paid holidays, maternity/paternity leave,
discrimination on grounds of race, sex, religion, etc.
 Need to consider government restrictions on access
by and employment of non-nationals
 A country with comparatively weak regulation may
attract investment, e.g. ‘sweatshops’ and EPZs.
However, consumers may react negatively to
employment practices perceived as exploitative, by
boycotting products.
 Human resource management (2)
 The global impact of the new labour market
 ‘Flexible employment’. HRM has come to represent a move
away from bureaucratic structures to more ‘flexible’ structures.
 This means that companies are less inclined to guarantee
permanent & secure employment contracts, or pay employer
contributions to pension funds and health care insurance of
the workers.
 This arrangement can be criticised for not enabling employees
to develop secure and sustainable livelihoods.
 It is said: “In choosing whom to appoint, profit and other
benefits to the firm are prioritised over whatever advantages
and disadvantages might accrue to the individual and to the
society in which the company operates” (see Cairns and
Sliwa, International Business)
 E.g. ‘brain drain’
 Accounting and finance (1)
 Firms within the international business environment
must comply with the accounting and financial
reporting practices of the various countries within
which they operate. This is defined by the legal
environment.
 Trend towards harmonisation of accounting and
financial reporting, auditing and stock exchange
standards. Especially the case following the ‘global’
credit crunch.
 Critique of harmonisation: it is based upon the
spread of standards originating within Anglo-Saxon
accounting practices, which might not be appropriate
for organizations operating within substantially
different environments.
 Accounting and finance (2)

 Companies can take advantage of the international

environment to minimise their financial costs. This is
particularly true in the area of taxation.
 E.g. ‘tax havens’ and ‘transfer pricing’ as means of avoiding
higher rates of tax.
 Example: ‘The UK subsidiary of a multinational company
constructs a bulldozer at a cost of £27,000 but sells it for
£300 to another subsidiary in the same group of
companies based, say, in Venezuela, which then sells it
on for its market price of £60,000. For tax purposes, the
UK subsidiary could claim a loss of £26,700 and pay no
corporation tax, even though the group made a global
profit of £33,000. That profit is generated by using British
infrastructure, but is recorded in another country with a
more favourable fiscal regime’ (Sikka, 2003)
 Innovation
 Innovation brings together the functions already
discussed and provides a strategic focus.
 Marketing for information on consumers is vital if
new products are to be successful.
 Innovative operations required if new products
require new machinery & new processes. This in
turn may require innovative HRM for changing work
methods. Commitment of financial resources also
required.
 R&D represents a high cost and therefore
companies prefer to direct R&D spending towards
low-risk and high-return developments – not
necessarily beneficial for all stakeholders
 E.g. health care
CONCLUSION
The actual period is characterized by an extremely strong
turbulence of the international business environment. Present
article evidences with arguments the main motives for the
scanning of the international business environment is the initial
stage of any business process.
Another conclusion refers to the emphasize on risk and
uncertainty from the whole scale of existing threats. The
developed conceptual approaches enclose the fate to prepare
the contractual and non-contractual solution finding in order to
avoid the losses thanks to a situation of risk and uncertainty.