INTERNATIONAL BUSINESS

ENVIRONMENT
The International
Business Environment

International management is management of

business operations conducted in more than one
country
Fundamental tasks do not change
Basic management functions
are the same - domestic or international
Greater difficulties and risks when performing on
an international scale

2
 SOCIO- CULTURAL ENVIRONMENT
“CULTURE INCLUDES KNOWLEDGE, BELIEF,
ART, MORAL,LAWS & OTHER CAPABILITIES AND
HABITS ACQUIRED BY AN INDIVIDUAL AS A
MEMBER OF SOCIETY”

CHARACTERISTICS OF CULTURE:

•LEARNED
•SHARED
•TRANSGENERATIONAL
•SYMBOLIC
•PATTERNED
•ADAPTIVE
Hofstede’s Value Dimensions
 Research = national value systems influence
organizational and employee working
relationships
Power distance (high = accept inequality)
Uncertainty avoidance (uncomfortable with
uncertainty)
Individualism and collectivism (Individualism
take care of themselves)
Masculinity/femininity (preference for
achievement/assertiveness; femininity for relationship)
 Long-term/short-term orientation = 5th dimension
Four Dimensions of National Value
LEVELS OF CULTURE
NATIONAL CULTURE: DOMINANT CULTURE
WITHIN THE POLITICAL BOUNDARIES OF
THE COUNTRY
BUSINESS CULTURE: REPRESENTS NORMS,
VALUES & BELEIFS THAT PERTAIN TO ALL
ASPECTS OF DOING BUSINESS IN A
PARTICULAR ENVIRONMENT
OCCUPATIONAL & ORGANIZATIONAL
CULTURE: PHILOSOPHIES, IDEOLOGIES,
VALUES, ASSUMPTIONS ETC. THAT KNIT AN
ORGANIZATION TOGETHER AND THAT ARE
SHARED BY ITS EMPLOYEES
• Rafael Rodriguez is a stock clerk supervisor at the Drug store in Pasadena, California.
Supervising people in the fast-paced world of Health Care Industry is demanding under
any circumstances, and the rich cultural mix of Rodriguez's team makes his job even
more challenging. Rodriguez is Hispanic, and his manager is African American. The
employees that Rodriguez supervises have cultural backgrounds that are as diverse as
the communities served by the nearly 700 drug outlets across the United States.
Moreover, as in most other drug stores, some of Rodriguez's employees have grown up in
the United States, whereas others have recently immigrated and speak English as a
second language.
The unique combination of influences present in one culture can condition people to
think, feel, and behave quite differently from people in another culture. Some of these
differences are dramatic, such as in the importance placed on social status. Other
differences can be more subtle and more difficult to perceive, such as variations in
personal values and decision-making approaches. Rodriguez finds that basic language
barriers often prevent employees from understanding each other, but the potential for
problems goes beyond differences in language. In one case, a recently immigrated
employee was inadvertently making some female co-workers uncomfortable by asking
personal questions about hairstyles and nose piercing. His questions were innocent, but
because of his cultural background, he couldn't see the invisible boundary that his
colleagues had built around their personal lives. Variations in culture—and the
misunderstandings that result from them—can affect teamwork, productivity, and job
satisfaction.
• If you were Rafael Rodriguez, what steps would you take to foster a productive
and satisfying work environment? How would you make sure your employees
improve their intercultural sensitivity so that they can communicate effectively
and work together efficiently?
• https://www.youtube.com/watch?v=SYbynThuONs
Economic Development

● Countries categorized as “developing” or

“developed”
● Criterion used to classify is per capita income
● Developing countries have low per capita
incomes
● LDCs located in Asia, Africa, and South America
● Developed are North America, Europe, & Japan
● Driving global growth in Asia, Eastern Europe, &
Latin America
8
ECONOMIC SYSTEM CLASSIFICATION
MARKET ECONOMY

•ALSO CALLED CAPITALISM, ALL PRODUCTIVE FUNCTIONS ARE

PRIVATELY OWNED
•PRODUCTION IS DETERMINED BY SUPPLY AND DEMAD FORCES.

REQUISITES FOR MARKET ECONOMY

•TRUST (IN BANKS, INSURANCE COMPANIES, SUPPLIERS ETC.)

•LAW AND ORDER (ENFORCEMENT OF CONTRACTS)
•SECURITY OF PERSONS AND PROPERTY
•BALANCING COMPETITION WITH COOPERATION
•DIVISION OF RESPONSIBILITY AND DIFFUSION OF POWER
•COMMUNITY ALTRUISM
•EFFICIENT FORM OF COMPETITION, AS OPPOSED TO
MONOPOLISTIC CONTROL
•FREEDOM OF INFORMATION
•FLOW OF INFORMATION WITHOUT RESTRICTION OR
FAVOURITISM
COMMAND ECONOMY
ALSO CALLED SOCIALISM, IN COMMAND
ECONOMY PLANNING IS MUST.
DECISION RELATING TO ALL ECONOMIC
ACTIVITIES ARE DETERMINED BY ECONOMY, A
CENTRAL GOVERNMENT PLAN.
THE TOOL OF PRODUCTION ARE ORGANIZED,
MANAGED AND OWNED BY GOVERNMENT,
WITH THE BENEFIT ACCRUING TO PUBLIC
OBJECTIVE IS FOR GOVERNMENT TO OWN AND
RUN BUSINESS FOR THE GOOD OF SOCIETY
MIXED ECONOMY
 FALLS MIDWAY BETWEEN A MARKET ECONOMY AND
COMMAND ECONOMY
 ECONOMIC SETUP IS SPLIT INTO THREE
1. SECTORS IN WHICH BOTH PRODUCTION AND
DISTRIBUTION ARE ENTIRELY MANAGED AND CONTROLLED
BY THE STATE TO THE COMPLETE EXCLUSION OF PRIVATE
ENTERPRISE
2. SECTORS IN WHICH THE STATE AND PRIVATE ENTERPRISE
JOINTLY PARTICIPATE IN PRODUCTION AS WELL AS
DISTRIBUTION
3. SECTORS IN WHICH THE PRIVATE ENTERPRISE HAS
COMPLETE ACCESS SUBJECT ONLY TO GENERAL CONTROL
AND REGULATION OF THE STATE
 CONTINUUM OF ECONOMIC SYSTEM
PURE MARKET ECONOMY

CUBA
U.S CANADA U.K FRANCE BRAZIL INDIA CHINA NORTH
KOREA

PURE CENTRALLY
PLANNED ECONOMY
REGIONWISE CLASSIFICATION OF
COUNTRIES
EAST ASIA AND PACIFIC
EUROPE (EAST AND CENTRAL) AND
CENTRAL ASIA
LATIN AMERICA AND CARRIBEAN
MIDDLE EAST AND NORTH AFRICA
SOUTH ASIA
SUBSAHARAN AFRICA
HIGH INCOME COUNTRIES
In response to a dispute with both the U.S. and the EU’s possible action toward
imposing tariffs on cheap textile products from China, China took
countermeasure actions to exclude those products from the existing export
tariffs to ward off damages to its economy. To resolve the issue, in June 2005,
EU signed an agreement with China imposing new quotas on ten categories of
textile goods, limiting growth in those categories to between 8 percent and
12.5 percent a year. The agreement was in hope of providing EU’s domestic
manufacturers time to adjust to a world of unfettered competition. But for most
retailers in Europe, which had already placed orders for mountains of new
goods from China, it turned out to be a disaster since tens of millions of
garments piled up in warehouses and customs checkpoints, when Chinese
textile manufacturers exceeded their quotas right after the restriction. As a
matter of fact, less than a month after the agreement, men’s trousers hit their
import quota, followed rapidly by T-shirts and flax yarn. It is estimated that
France lost about a third of its jobs in the sector between 1993 and 2003. Italy
has also seen its firms suffer since the euro transition. Nevertheless, it is not
clear as to how the quota restriction on Chinese goods would help domestic
producers, especially when there are so many low-cost firms in low-wage
countries like Bangladesh and Costa Rica waiting to take up any Chinese slack.
According to an EU official, the action against China was designed to help
workers in those very countries in that ‘‘The EU also considered the effect the
Chinese market share was having on other developing countries that have
historically been dependent on our market. Who will protect jobs in Tunisia and
Morocco?’’ While large retailers will probably be able to find new sources for
their autumn and winter lines under the quota restriction, it seems that smaller
stores may be driven into bankruptcy as the clothes they have bought would be
buried in warehouses around Europe.
Do you think the EU textile war with China will eventually save their domestic
Four Global Foundations of
Law

Islamic law
Socialist law
Common law
Civil law
Four Global Foundations of Law
Islamic Law

Derived from interpretation of the Qur’an

and teachings of Prophet Muhammad
Found in some Islamic countries
Middle East
Central Asia
Four Global Foundations of Law
Socialist Law

 Originally, business and other property were

owned by the state
Still true in Cuba and North Korea
 Mixture of state-owned and private enterprise in
Russia, China, Vietnam
Government still takes an active role in
business
Many regulations
Arbitrary and inconsistent enforcement of
regulations
Four Global Foundations of Law
Common Law

Comes from English law

Based on custom and precedent (previous
cases)
There are also written law codes.
Foundation of legal system in United States,
Canada, England, Australia, India, and New
Zealand
 Four Global Foundations of Law
Civil Law

Derived from Roman law

Western and central Europe
Some Latin American countries
Louisiana state law
Cases are decided on the basis of written law
codes
Principles of International Law
Sovereignty: governments have the right to
rule as they see fit.
International jurisdiction
A country has jurisdiction within its legal
territory
A country has power over its citizens and
businesses, wherever they are located
A country has jurisdiction over actions that
harm its national security, even if those
actions occurred outside its territory
 Principles of International Law (2)
 Doctrine of comity: Governments show mutual
respect for the laws, institutions, and
governments of other countries who are
exercising jurisdiction over their own citizens
(doctrine but not law)
 Act of State Doctrine (U.S. law): All acts of other
governments are considered to be valid in U. S.
courts
 Principles of International Law (3)
U. S. courts do not have to settle civil cases
brought by foreign citizens or firms in U. S.
courts.
Treatment of aliens
Countries have the legal right to refuse
admission of foreign citizens and to impose
restrictions on their conduct, right of travel,
where they can stay, and what business they
may conduct
Countries can also can deport citizens of
foreign countries
TECHNOLOGICAL ENVIRONMENT
TECHNOLOGY & INTERNATIONAL MANAGEMENT

RAPID ADVANCES IN BIOTECHNOLOGY – REVOLUTIONIZE

THE FIELD OF AGRICULTURE,MEDICINE, INDUSTRY.
EMERGENCE OF NANOTECHNOLOGY – ABILITY TO
REMAKE WHOLE PHYSICAL UNIVERSE
SATELLITE ROLE IN LEARNING
AUTOMATIC TRANSLATION TELEPHONES
ARTIFICIAL INTELLIGENCE
SUPERCOMPUTERS CAPABLE OF 1 TRRILLION
CALCULATIONS/SECOND – RESPOND EASILY TO SPOKEN
COMMANDS
CONTD…

•E-BUSINESS
THE AREA OF E-BUSINESS THAT AFFECT GLOBAL
CUSTOMERS:
E-RETAILING
E- FINANCIAL SERVICES
E-CASH
•TELECOMMUNICATIONS
•TECHNOLOGY, OUTSOURCING & OFFSHORING
FUTURE TECHNOLOGY HAS A POTENTIAL TO DISPLACE
EMPLOYEES IN ALL INDUSTRIES
MAKES WORK MORE PORTABLE
•ADVANTAGES
COST OF DOING BUSINESS WORLDWIDE WILL DECLINE
PRODUCTIVITY GO-UP & COST GO-DOWN
•DISADVANTEGES
LOSS OF JOB / REDUCTION IN SALARY
 Discussion questions

• Some observers claim that the internet revolutionizes the way

small and medium-sized companies (SMEs) can compete in the
global market place. In essence, the internet has created a level
playing field for SMEs. Where before SMEs had a hard time to
internationalize, now any mom-and-pop outfit can open an
electronic storefront with a global reach. Do you agree? What
downsides do small e-businesses face vis-a-vis large companies.
Discuss with specific reference to Pharmaceutical Industry.
 POLITICAL ENVIRONMENT
•Influence of the system of government and judiciary in a
nation on international business
•Basic political systems:
Democracy: political arrangement in which supreme
power is vested in the people. Two types
Pure democracy (Direct democracy)
Representative democracy (Indirect democracy)
Totalitarianism: individual freedom is completely
subordinated to the power of authority of state &
concentrated in the hand of few or small group
Types of totaliarinism
Theocratic- religious leaders are political leaders
Secular- political leaders are guided by military and
bureaucratic power
Tribal – political party that represents the interest of
particular tribe monopolises power
Right wing totalitarianism – private ownership of
 POLITICAL RISKS
 Macro-political risks: affects all international
business in the same way. Like barriers to
repatriation of profit, mandatory labor legislation
 Micro-political risks: affects specific foreign
business. Like – increased taxation, official
dishonesty.
 Political risks assessments
 Two ways –
1. The use of experts or consultants familiar with
host country
2. Development of internal staff and inhouse
capabilities
 CRITERIA FOR EVALUATING POLITICAL RISKS
A. DOMESTIC-ECONOMIC
CONDITION
•Size of the population
•Per capita income
•Economic growth over the last
5 yrs, potential growth over the
next 3 yrs
•Inflation over the past 2 years
•Availability of high quality local
labour force
•Possibility of employing foreign
nationals
•Legal requirements regarding
environment pollution
•Infrastructure, including
transportation and
communication systems
B. POLITICAL – ECONOMIC ENVIRONMENT
•Stability of political system
•Imminent internal conflicts & External threats to
stability
•Degree of control of the economic system
•Reliability of the country as trading partner
•Constitutional guarantees
•Effectiveness of public administration
•Labour relations and social peace
C. EXTERNAL ECONOMIC RELATIONS
•Import, export restrictions
•Restrictions on foreign investments
•Freedom to setup or engage in
partnerships
•Bop situations
•International financial standing
 MANAGING POLITICAL RISKS
MANAGING RISKS

DIRECT INDIRECT

1. HOST OPERATIONS
1. RISK INSURANCE
DEPENDENT ON
REACTIVE 2. HOME COUNTRY GOVT
HOME CONTROL
PRESSURING HOST GOVT
2. DIVERSIFICATION

1. JOINT VENTURES 1. LOBBYING HOME & HOST GOVT

2. LICENSING AGREEMENT 2. CORPORATE CITIZENSHIP IN
PROACTIVE 3. PROMOTE HOST GOALS HOST COUNTRY
In December-2005, Physician of Karen L. Bartlett was
prescribed Clinoril, the brand-name version of the Non-
Steroidal Anti- Inflammatory Drug (NSAID) sulindac, for
shoulder pain of Karen L. Bartlett. Her pharmacist dispensed
a generic form of sulindac manufactured by petitioner Mutual
Pharmaceutical. Karen L. Bartlett soon developed an acute
case of toxic epidermal necrolysis. She is severely disfigured,
has physical disabilities, and is nearly blind. At the time of
the prescription, sulindacs label did not specifically refer to
toxic epidermal necrolysis. By 2005, however, the FDA had
recommended changing all NSAID labeling to contain a more
explicit toxic epidermal necrolysis warning. Respondent sued
Mutualin New Hampshire state court. A jury found Mutual
liable on respondent’s design-defect claim and awarded her
over $21 million. 
Ranbaxy pharmaceutical of India is charged with producing low
quality generic drugs in US and manipulating data’s required for
filing NDA and ANDA approvals in US, thus cheating their counter
parts in many ways to be first in the race of producing generic
version. Ranbaxy pleaded guilty to seven federal criminal counts
of selling adulterated drugs with intent to defraud, failing to
report that its drugs did not meet specifications, and making
intentionally false statements to the government. Ranbaxy
agreed to pay $500 million in fines, forfeitures, and penalties-the
most ever levied against a generic-drug company. The company,
now majority owned by Japanese drug maker Daiichi Sankyo,
sells its products in more than 150 countries and has 14,600
employees. It also came to light that even Ranbaxy scientist
adulterated there generic testing drug with branded drugs for
manipulating bioequivalence study.