Lecture 1

 International business environment = a body of knowledge from economics that

decision makers in business may use
 Theoretical statement = establishes a universally valid relationshipp of causality
between concepts (ex. „price increase for a product will lead, ceteris paribus, to a
decrease in demand”) = abstract, universal, etc.
 Historical proposition = presents an event from the past which occured in a particular
setting of time and space (ex. „in 2012, Apple Inc. Launched Iphone 5 on the
international market”) = does not pretend to explain why, it just transmits a piece of
information.
 Entrepreneurial judgment = an opinion regarding a possible future development (ex.
„next year, compact car sales will grow”) = about future, speculative, implies risk
 Succesful entrepreneurship = the ability of entrepreneurs to best serve certain
consumption desires

Entrepreneurs always allocate resources in the present in order to get a future profit =
they take over the „economics risk”.
→ there is no sure receipt for getting a profit = there is no „theory” of successful
entrepreneurship (a theory of „how to make money”)
→ there are however some „laws” of the economic system that the business decision makers
have to pay attention = if they choose to ignore them, the consequences can be massive
(leading to business failure) = ex. inflation, business cycle, nationalization / expropriation, so
on.

Business versus politics

Business
 the core end is private profit.
 market transactions are always mutually agreed.
 the price is a result of supply and demand.
 profit is a sign that producers satisfy consumer needs.
 failure to satisfy consumer needs lead to bankruptcy.
 There is always an alternative!
Politics
 the core ends are political objectives.
 implies the use of the state mechanisms (which is, in the end, based on coercion –
e.g., taxation).
 there is no price, it is difficult to assess the satisfaction of “consumers” (that is,
citizens).
 failures are “socialized”.
 There is no alternative!

Definitions of international business environment

= „all the forces that influence any aspect of the activity of an organization” [Ian Brooks,
2004]
→ including too many dimensions will be impossible = however, it is an iimage of the
complexity of any business environment
→ the need for more focus

Environment versus market

Environment
 a vast variety of actors (political, social, economic, cultural, religious and so on)
 Interaction is through formal and informal agreements.
 the goals of the actors are incredibly diverse.
 their knowledge is incredibly diverse.
 high number of externalities (cannot be internalized).
 social order and rulemaking are endogenous.
 others.
Market
 there are two types of actors: buyers and sellers.
 interaction is through markets contracts.
 we assume that their goal is profit maximization.
 the knowledge is somehow unified through the rewarding of the most competing
and the penalizing of the least competitive (in terms of welfare)
 externalities can be internalized through contract clauses.
 rulemaking is exogenous.
 others.
Limited number of dimensions of the study of „business environment”

 PEST = political, economic, social and technologic

 PESTLE (STEEPLE) = political, economic, socio-cultural, technologic, legal and
ethical (also the natural environment)
 Initially, the concept of environment was used in the legal dimensions („legal
environment” = the core body of laws with an impact on doing business).
 Later, the awarenes that the formal / nominal laws are not enough for encompassing
aspects with a big impact on business: national culture, business practices, customs,
organizational culture, etc.

Some clarifications: „business environment”

 an objective reality, independent, that can be measured → a significant number of

quantitative analysis and hierarchies / comparizons at the international level („World
Economic Forum”, „Heritage Foundation”, so on)
 a subiective opinion, different from persons / organizations

Ease of doing business”

(ranking by World Bank, 2018)

1. New Zeeland. 24. Malaysia

2. Singapore 27. Poland
3. Denmark. 40. Kosovo
4. Korea 41. Rwanda
5. Hong Kong ...
6. United States 44. Moldova
7. United Kingdom 45. Romania
8. Norway. 46. Italy
9. Georgia …
10. Sweden 185. Libya
189. Eritrea
21. United Arab Emirates
190. Somalia
 We wil explore two fundamental approaches:

 business perspective → theory of the firm and the theory of the international firm =
how firms perceive the business environment
 government perspective → the theory of public regulation → there is a competition
not only between firms but also between governments in attracting economic activity
(such as Foreign Direct Investments) → governments attempt to „create” a business
environment which is friendly towards firms and companies in order to reach some
public objectives

There is a common parallel/comparison between the „business

environment” and the „natural environment/ecosystem”

 complex relationships between an entity and its „environment”: supply chain (in
business) versus food chain (in nature)
 the paradigm of „competition” = the best fit to its environment will survive
 the theory of „evolution” = the challenge of „change” and „adaptation” = only those
who adapt will be able to survive
 no single entity can „unbalance” the system under normal circumstances („the law of
large numbers”)
 the „alien” = either dissappears or becomes hugely successful („invasive species”)

Any metaphor has its limits:

 social actors (for-profit business firms, non-governmental organizations and not-for-

profit entities, governments, cartels, so on) have the ability to take the initiative to
change the environment → social actors are not only „reactive” but also
„constructive” = activities such as „Public Relations”, „lobby” and „advocacy”
 human beings always surprise themselves and the others by the ability to „arbitrate”
the rules