GLOBALISATION

Globalization may be defined as “ the growing economic interdependence of countries

worldwide through increasing volume and variety of cross border transactions in goods and
services and of international capital flows, and also through the more rapid and widespread
diffusion of technology”.

Globalization may be considered at two levels .Viz, at the macro level (i.e., globalization of the
world economy) and at the micro level (i.e., globalization of the business and the firm).
Globalization of the world economy is achieved, quite obviously, by globalising the national
economies. Globalization of the economies and globalization of business are very much
interdependent.

STAGES OF GLOBALISATION

There are five different stages in the development of a firm into global corporations
First stage
The first stage is the arm’s length service activity of essentially domestic
company, which moves into new markets overseas by linking up with
local dealers and distributors.
Second stage
In the stage two, the company takes over these activities on its own.
Third stage
In the next stage, the domestic based company begins to carry out its own manufacturing,
marketing and sales in the key foreign markets.
Four stage
In the stage four, the company moves to a full insider position in these markets, supported by a
complete business system including R & D and engineering.
This stage calls on the managers to replicate in a new environment the hardware, systems and
operational approaches that have worked so well at home.
Fifth stage
In the fifth stage, the company moves toward a genuinely global mode of operation.

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BUSINESS ENVIRONMENT

Meaning and definition of Business Environment

Business Environment can be defined as the combination of internal and external factors that
influence a company's operating situation. The business environment can include factors such as:
clients and suppliers; its competition and owners; improvements in technology; laws and
government activities; and market, social and economic trends.

Business Environment literally means all those aspects that have a bearing on the business such
as its strengths, weaknesses, internal power relationships and orientations of the organization;
government policies and regulations; nature of the economy and economic conditions: socio-
cultural factors: demographic trends; natural factors; and, global trends and cross-border
developments.

Business environment plays a key role in shaping the business decisions and strategies of a firm.
The opportunities and threats for a business come mainly from its external environment which
includes factors like economic, political, technological and social. Similarly, the internal factors
like managerial capabilities, efficiency in resource utilization etc make an organization strong or
weak.

Characteristics of Business Environment

Business environment has the following characteristics:
1. Environment is Complex
Business environment is complex because it is continuously exposed to countless challenges,
like technological disruptions, global competition, leadership change, shifting economic, social,
and regulatory conditions etc. It is very stressful for a firm to survive and prosper in such an
environment.
2. Environment is Dynamic
Both the internal and external environments of business are highly dynamic or vibrant owing

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to the following:
 customer preferences keep evolving,
 New competeters enter the market.
 Arise of novel technology.
 New marketing channels.
 New resources.
 New policies.
 Changing demography

3. Environment is uncertain.
Not anything can be assumed with any degree of certainty about the factors of the business
environment because they continue to change quickly.
The dimensions of uncertainty include the following:
 Macro-environmental uncertainty: This is the uncertainty in the organization’s general
environment, including political, regulatory, statutory, and economic conditions. This uncertainty
has the capacity to reduce an organization’s capability for mapping out and pursuing strategic
choices (Miller and Friesen 1984).
 Competitive uncertainty: This is the uncertainty regarding the assessment of relative powers of
competitors, their future courses of action, and strategies.
 Market (and demand) uncertainty: This uncertainty stems from lack of clarity in the dynamics
of the market and their effects on the organization’s operations, and demand and supply
conditions in the industry.
 Technology uncertainty: This uncertainty owes to change in the industry’s technological
resources and capabilities.

4. Relativity
Business environment is related to the local conditions and this is the reason as to why the
business environment occurs to be diverse in different countries and different even in the same
country at different places.
5. Interrelatedness
The different factors of business environment are co-related. For example, let us suppose that

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there is a change in the import-export policy with the coming of a new government. In this case,
the coming of new government to power and change in the import-export policy are political and
economic changes respectively. Thus, a change in one factor affects the other factor.

ENVIRONMENTAL ANALYSIS

Stages of environmental analysis

1. Scanning the environment.
Environmental scanning is primarily done for identifying the factors which may have
implications on the business. This is the prime step to be done in environmental analysis. A good
scanning of environment can reveal so many hidden factors in the environment.
2. Monitoring particular factors spotted.
In the process of scanning, some particular factors which need due attention might have been
identified. At this stage of analysis, such factors or trends evolving should be undergone for keen
understanding. The outputs of monitoring are therefore, a precise picture of the environmental
issues, identification of tendencies for additional scrutiny and recognition of patterns demanding
further scanning.
3. Forecasting
It refers to anticipating the future threats and opportunities for formulating strategic plans. It
can be defined as Estimating the intensity, nature, and timing of the external forces that may
affect the performance of a firm, disrupt its plans, or force a change in its strategies.
4. Assessment
Assessment refers to realizing implications or probable impacts of those factors which may cause
threats and provides opportunities. Environmental analysis has some advantages like better
relationship between environment and these are factors existing outside the business and are
beyond its control to a large extent. The external business environment is classified again in to
micro and macro environment. Micro environment consists of those factors which have a direct
and intimate impact on the firm. E.g.: Suppliers and distributors of the firm. The micro
environment is also known as task environment or operating environment. Certain factors like
economic policies of the government; demographic factors etc affect the industry as a whole and
is known as macro environment of busi

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 GLOBAL ENVIRONMENT

1. Political and Legal Environment

Political and government environment has close relationship with the economic system and
economic policy. For example, the communist countries had a centrally planned economic
system. In most countries, apart from those laws that control investment and related matters,
there are a number of laws that regulate the conduct of the business. These laws cover such
matters as standards of products, packaging, promotion etc.

In many countries, with a view to protecting consumer interests, regulations have become
stronger. Regulations to protect the purity of the environment and preserve the ecological
balance have assumed great importance in many countries.

Some governments specify certain standards for the products (including packaging) to be
marketed in the country; some even prohibit the marketing of certain products. In most nations,
promotional activities are subject to various types of controls. Media advertising is not permitted
in Libya. Several European countries restrain the use of children in commercial advertisements.
In a number of countries, including India, the advertisement of alcoholic liquor is prohibited.
Advertisements, including packaging, of cigarettes must carry the statutory warning that
“cigarette smoking is injurious to health”.

Similarly, advertisements of baby food must necessarily inform the potential buyer that breast-
feeding in the best. In countries like Germany, product comparison advertisements and the use of
superlatives like ‘best’ or ‘excellent’ in advertisements is not allowed In the United States, the
Federal Trade Commission is empowered to require a company to provide the quality,
performance or comparative prices of its products.

“What is being asked of the drug industry and of American business in general is a fuller
disclosure of the relevant facts about products. For drugs, food additives, some cosmetic

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preparations, and so forth, a full disclosure requires more knowledge of the long-range side
effects of materials ingested into the complex human body.

For example; There are a host of statutory controls on business in India. If the MRTP companies
wanted to expand their business substantially, they had to convince the government that such
expansion was in the public interest. Indeed, the “Government in India has an all-pervasive and
predominantly restrictive influence over various aspects of business, e.g, industrial licensing
which decides location, capacity and process; import licensing for machinery and materials; size
and price of capital issue; loan finance; pricing; managerial remuneration; expansion plans;
distribution restrictions and a host of other enactments. Therefore, a considerable part of
attention of a Chief Executive and his senior colleagues has to be devoted to a continuous
dialogue with various government agencies to ensure growth and profitability within the
framework of controls and restraints”.

Certain changes in government policies such as the industrial policy, fiscal policy, tariff policy
etc. may have profound impact on business. Some policy developments create opportunities as
well as threats. In other words, a development which brightens the prospects of some enterprises
may pose a threat to some others.

Economic environment
The Economic environment includes broad factors like structure and nature of the economy, the
stage of development of the economy, economic resources, the level of income of the economy,
the distribution of income and assets among citizens, linkages with global economy, economic
policies etc. Important economic factors are:

a) Degree of economic development.

Extent of development of a country’s economy can exert influence on the business prosperity in
many ways. Factors like nature and size of demand, government policies affecting business etc
derive basically from the level of economic development of a nation. Economies can be
classified in to three as low income, middle income and high income countries, on the basis of
the degree of development.

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In a developing country, the low income may be the reason for the very low demand of the
product. Such a circumstance may even necessitate the development of a new low cost product.
For instance, Colgate devised a simple, hand driven, low-cost ($10) washing machine for low
income buyers in less developed countries. On the other hand, businesses will prosper in those
economies which are highly developed, and where investment and income are swiftly rising.
b) Structure of the economy.
The structure of the economy encompasses factors such as contribution of different sectors like
primary (agricultural), secondary (industrial) and tertiary (service) sectors. Large, medium and
small sectors, integration of the domestic economy with the world economy etc are imperative to
business because these factors designate the prospectus for different types of business.

The character of each sector and its various components has bearing on the business. For
instance, even if we are in the first place in the production of several agricultural products, we
cannot collect and process crops efficiently because of the small and scraped nature of the land
possession. Agricultural inputs business may be affected by this.

c) Economic policies.
Economic policies like industrial policy, trade policy, foreign exchange policy, monetary policy,
fiscal policy, and foreign investment and technology policy etc can exert high influence on
business operations. While some enterprises get benefits out of certain government policies,
others may suffer.
 Industrial policy
Policies on industries usually define the role and objectives of different sectors like private and
public, large, medium and small etc. Businesses would be compelled to change their operations
in accordance with the new policy regime.
 Trade policy
A preventive import policy of the government may do benefits to the home industries.
 Fiscal and monitory policies
Fiscal policy includes the government’s tactics on public expenditure and revenue. It
can restrain or foster business operations. Similarly, a policy of the Reserve bank to restrain flow
of credit can affect the savings, investments etc.

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d) Economic conditions
Economic conditions refer to the state of the economy in a country or region. Economic
conditions change over time. General economic conditions have an effect on business.
Economies pass through periods of boom and recession. A boom is attributed by high levels of
output, employment and rising demand and prices. A business can reap profits during the periods
of boom and the reverse happens during recession.

Thus it can be inferred that all these factors make the economic environment of a business
complex and it has to formulate its own policies for its survival

Socio-Cultural Environment

The socio-cultural fabric is an important environmental factor that should be analyzed while
formulating business strategies. The cost of ignoring the customs, traditions, taboos, tastes and
preferences, etc., of people could be very high.
The buying and consumption habits of the people, their language, beliefs and values, customs
and traditions, tastes and preferences, education are all factors that affect business.

For a business to be successful, its strategy should be the one that is appropriate in the
socio-cultural environment. The marketing mix will have to be so designed as best to suit the
environmental characteristics of the market. In Thailand, Helene Curtis switched to black
shampoo because Thai women felt that it made their hair look glossier. Nestle, a Swiss
multinational company, today brews more than forty varieties of instant coffee to satisfy
different national tastes.

Even when people of different cultures use the same basic product, the mode of consumption,
conditions of use, purpose of use or the perceptions of the product attributes may vary so much
so that the product attributes method of presentation, positioning, or method of promoting the
product may have to be varied to suit the characteristics of different markets.

In the U.S. market, correct weight and bacteriological factors are more important rather than eye
appeal, colour, uniformity of size and arrangement of the shrimp which are very important in

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Japan. Similarly, the mode of consumption of tuna, another seafood export from India, differs
between the U.S. and European countries. Tuna fish sandwiches, an American favorite which
accounts for about 80 per cent of American tuna consumption, have little appeal in high tuna
consumption European countries where people eat it right from the can. A very interesting
example is that of the Vicks Vaporub, the popular pain balm, which is used as a mosquito
repellant in some of the tropical areas.

The differences in languages sometimes pose a serious problem, even necessitating a change in
the brand name. Preeti was, perhaps, a good brand name in India, but it did not suit in the
overseas market; and hence it was appropriate to adopt ‘Prestige’ for the overseas markets.
Chevrolet’s brand name ‘Nova’ in Spanish means “it doesn’t go”. In Japanese, General Motors’
“Body by Fisher” translates as corpse by Fisher”. In Japanese, again, 3M’s slogan “sticks like
crazy “translates as “sticks foolishly”. In some languages, Pepsi-Cola’s slogan “come alive”
translates as “come out of the grave”.

The values and beliefs associated with colour vary significantly between different cultures.
Blue, considered feminine and warm in Holland, is regarded as masculine and cold in Sweden.
Green is a favorite colour in the Muslim world; but in Malaysia, it is associated with illness.
White indicates death and mourning in China and Korea; but in some countries, it expresses
happiness and is the colour of the wedding dress of the bride. Red is a popular colour in the
communist countries; but many African countries have a national distaste for red colour.

There are also a number of demographic factors, such as the age, and sex composition of
population, family size, habitat, religion, etc., which influence the business.
While dealing with the social environment, we must also consider the social environment
of the business which encompasses its social responsibility and the alertness or vigilance of the
consumers and of society at large.
The societal environment has assumed great importance in recent years. As Barker observes,
business “traditionally has been held responsible for quantities-for the supply of goods and jobs,
for costs, prices, wages, hours of works, and for standards of living.

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 Demographic Environment

Demographic factors like the size, growth rate, age composition, sex composition, etc. of the
population, family size, economic stratification of the population, educational levels, languages,
caste, religion etc. Are all factors that are relevant to business?

Demographic factors such as size of the population, population growth rate, age composition, life
expectancy, family size, spatial dispersal, occupational status, employment pattern etc, affect the
demand for goods and services. Markets with growing population and income are growth
markets. But the decline in the birth rates in countries like the United States have affected the
demand for baby products. Johnson and Johnson have overcome this problem by repositioning
their products like baby shampoo and baby soap, promoting them also to the adult segment,
particularly to the females.

A rapidly increasing population indicates a growing demand for many products. High population
growth rate also indicates an enormous increase in labour supply. When the Western countries
experienced the industrial revolution, they had the problem of labour supply, for the population
growth rate was comparatively low. Labour shortage and rising wages encouraged the growth of
labour-saving technologies and automation.

But most developing countries of today are experiencing a population explosion and a situation
of labour surplus. The governments of developing countries, therefore, encourage labour
intensive methods of production. Capital intensive methods, automation and even rationalization
are opposed by labour and many sociologists, politicians and economists in these countries. The
population growth rate, thus, is an important environmental factor which affects business. Cheap
labour and a growing market have encouraged many multinational corporations to invest in
developing countries.

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 Natural Environment

Geographical and ecological factors, such as natural resource endowments, weather and climatic
conditions, topographical factors, locational aspects in the global context, port facilities, etc., are
all relevant to business.
Differences in geographical conditions between markets may sometimes call for changes in the
marketing mix. Geographical and ecological factors also influence the location of certain
industries. For example, industries with high material index tend to be located near the raw
material sources.

Climatic and weather conditions affect the location of certain industries like the cotton textile
industry. Topographical factors may, affect the demand pattern. For example, in hilly areas with
a difficult terrain, jeeps may be in greater demand than cars.
Ecological factors have recently assumed great importance. The depletion of natural resources,
environmental pollution and the disturbance of the ecological balance has caused great concern.
Government policies aimed at the preservation of environmental purity and ecological balance,
conservation of non-renewable resources, etc., have resulted in additional responsibilities and
problems for business, and some of these have the effect of increasing the cost of production and
marketing. Externalities have become an important problem the business has to confront with.

Physical and Technological Environment

Physical Factors, such as geographical factors, weather and climatic conditions may call for
modifications in the product, etc., to suit the environment because these environmental factors
are uncontrollable. For example, Esso adapted its gasoline formulations to suit the weather
conditions prevailing in different markets.

Business prospects depend also on the availability of certain physical facilities. Some products,
like many consumer durables, have certain use facility characteristics. The sale of television sets,
for example, is limited by the extent of the coverage of the telecasting. Similarly, the demand for
refrigerators and other electrical appliances is affected by the extent of electrification and the

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reliability of power supply. The demand for LPG gas stoves is affected by the rate of growth of
gas connections.

Technological factors sometimes pose problems. A firm, which is unable to cope with the
technological changes, may not survive. Further, the differing technological environment of
different markets or countries may call for product modifications. For example, many appliances
and instruments in the U.S.A. are designed for 110 volts but this needs to be converted into 240
volts in countries which have that power system. Technological developments may increase the
demand for some existing products. For example, voltage stabilizers help increase the sale of
electrical appliances in markets characterized by frequent voltage fluctuations in power supply.
However, the introduction of TVs, Fridges etc, within built voltage stabilizer adversely affects
the demand for voltage stabilizers.

3. Technological environment
Along with determining the destiny of an organization, technology can contribute to the
economic and social development of a nation. Factors like the type of technology in use, the
level of technological developments, the speed with which new technologies are adopted and
diffused, the type of technologies that are appropriate, the technology policy etc has deep
implications on the prospects of the business. Technology can be bifurcated in to the tools-both
machines (Hard Technology) and ways of thinking (Soft Technology) - accessible to crack
problems and uphold progress between societies.

Technological environment of a firm includes the following.

 Innovation
It is the eminent economist, Joseph Schumpeter, who upheld the value of innovation in the
development of s business firm and society. There are three types of innovations as Radical
innovation (fundamental technological innovation that launches a new machinery like the
invention of steam engine or steam boat), incremental innovation (altering an existing
technology system that does not modify functionality but improve performance) and next
generation technology innovation (similar to incremental innovation but improve performance
dramatically.

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 Technology leadership and followership
A firm seeking better technologies can either become a technology leader or follower.
Leadership refers to becoming the first in introducing a particular technology and followership
means a firm chooses not to become first on innovations.
 Technology may augment the competitive advantage of a firm in the following ways:
 Technological transformation may reduce cost and it will boost a firm’s differentiation
abilities with other similar firms.
 Initiating the technological change may give first mover advantage to a firm.
 Technological change will improve the overall industrial structure

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