INTERNATIONAL BUSINESS

ENVIRONMENT
BY:SMRUTI VAKIL
INTERNATIONAL BUSINESS ENVIRONMENT
THE PEOPLE FACTOR.
Cultural Environments
-Cultural Diversity,
-Cultural collision,
-Sensitivity and Adjustment
are very important aspects
related to people all over the
world.
Definition of a Political System
Political Environment
The complete set of institutions,
political organizations, and
interest groups,
The relationships among
institutions, and the political
norms and rules that govern
their functions
-Company managers study
Economic environment
economic environments to
estimate how trends affect their
performance
-A country’s economic policies
are a leading indicator of
government’s goals and its
planned use of economic tools
and market reforms.
-Economic development directly
impacts citizens, managers,
policymakers, and institutions.
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• The cultural environments facing business…
CULTURAL
The idea of a “ nation”: delineatingENVIRONMENTS
cultures:
Culture :The specific learned norms based on attitudes, values, and beliefs that
exist in every nation…An integral part of external environments
The nation as a point of difference.
The idea of a nation provides a workable definition of culture because the basic
similarity among people is often both cause and effect of national boundaries. The
nation acts as a cultural mediator. The existence of shared attributes doesn’t mean
that everyone in a country is alike.
How cultures form and change???
Culture is transmitted in various ways-from parent to child, teacher to pupil, social
leader to follower, peer to peer.
• Source of change
• Change by choice
• Change by imposition
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 The Determinants/Elements of Culture

Religion

Social Political
Structure Philosophy

Culture Norms
& Value System
Language Economic
Philosophy

Education
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Language as both a diffuser and stabilizer of culture.
English travels so well as English speaking people account for over 40% of the
world’s population- a fact that goes a long way toward explaining why English
is the world’s most important second language.
Religion as a cultural stabilizer.
It is because centuries of profound religious influence continue to play a major role
in shaping cultural values in societies. Every religion influences whether it is
Buddhism, Christianity, Hinduism, Islam, etc.

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IMPLICATIONS FOR INTERNATIONAL BUSINESS

1. Spreading cross-cultural literacy

2. Culture and competitive advantage
3. Managing diversity:
- Some practical measures: focus on bringing the best talent not on meeting numerical knowledge.
- Hold managers accountable for meeting goals of diversity
- Establish monitoring programs among employees of same and different races.
- Develop career plans for employees as part of performance reviews
- Promote minorities and other disadvantaged sections to decision-making positions, not just to
staff jobs
- Diversify the company’s board of directors
5. Culture-strategy compatibility 6
POLITICAL ENVIRONMENT

Political system : A country’s political system refers to the

structural dimensions and power dynamics of its government that
specify institutions, organizations, and interest groups, and define
the norms that govern political activities
Individualism vs. Collectivism
• Individualism: primacy of the rights and role of the individual
• Collectivism: primacy of the rights and role of the community 8
 Political System Defined

Collectivism &
Individualism

Political System

Democracy &
Totalitarianism 9
“A political ideology is the system of ideas that expresses the goals, theories and
POLITICAL IDEOLOGY DEFINED
aims of a sociopolitical program.

The body of constructs, theories, and aims that constitute a sociopolitical program.

• Pluralism indicates the coexistence of a variety of ideologies within a particular

society. It can also arise when two or more groups in a country differ in
language, class structure, religion.

• Shared ideologies create bonds within and between countries; differing

ideologies split societies apart.

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 POLITICAL IDEOLOGY

• Parliamentary Democracy
• Liberal Democracy
DEMOCRACY • Multiparty democracy
• Representative democracy

• Authoritarianism:
TOTALITRIANI • Fascism
SM • Secular totalitarianism
• Theocratic totalitarianism
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 DEMOCRACY

• Democracy refers to the political arrangement in which the supreme power is

vested in people.
• Democracy is government of the people, for the people, by the people.
• Modern day democracies translate this ideology in to the principle that all
citizens are politically and legally equal, entitled for the freedom of thought,
opinion, belief, speech etc.
• A demographic government protects personal and political rights.
• Democracy and individualism are intrinsically related and mutually reinforcing,
individualism legitimates principles and democracy supports the standard of
individualism.
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PROMINENT TYPES OF DEMOCRACIES

• Parliamentary democracy: citizens have power to elect the representatives to a legislative

branch of govt called parliament. Ex: india and australia
• Liberal democracy: all citizens, both public & private treated equally. All liberal
democracies are representative democracy. Ex: japan & new zealand
• Multiparty democracy: more political parties have the capacity to gain control of
government. Ex: Canada, Italy, Germany
• Representative democracy: Protects individual freedom and liberties. people’s elected
representatives given responsibility of acting in interest of people, though not merely as
their proxy representatives. Enjoy sufficient authority. Ex: US
 TOTALITRIANISM

• In totalitarianism , individual freedom is completely subordinated to the power of

authority of state and concentrated in the hands of one person or in a small group.
• A totalitarian system consolidates power in a single agent who then controls political,
economic and social activities.
• The agent believes it has noble intentions, protecting people from the hazards of
individual choice. Fair game includes regulating residents, occupation, income level,
interests, religion and even family system.
• Totalitarianism and collectivism are intrinsically related and mutually reinforcing,
collectivism legitimates principles of totalitarianism and totalitarianism supports the
standard of collectivism.
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PROMINENT TYPES OF TOTALITARIANISM

• Authoritarianism: The regime tolerates no deviation from state ideology,

Day to day life reflects unquestioning obedience to state authority, and
resistance usually incurs serve punishment. E.g North Korea.
• Fascism: A nation based values and systems. A significant number of
scholars agree that a "fascist regime" is foremost an authoritarian from of
government, though not all authoritarian regimes are fascist. There are no
countries considered fascist today, according to generally accepted
definitions of fascism.
• e.g EARLY 20TH-CENTURY EUROPE.
• Advocates a single party state that controls, through force, people’s minds,
souls, and daily existence.
 CONTI….
• Secular totalitarianism: A single political party forms a government in which only party

members hold office. Ex: China, the communist party(CPC) wields sole power.

It grants limited individual freedoms provided one does not disturb state authority or disrupt

social harmony.

E.g CHINA,

Theocratic totalitarianism: Under this system, Government is an expression of the preferred

deity( Considered as the nature of god), with leaders often claiming to represent deity’s interests on

earth. 16

• E.g IRAN, AFGHANISTAN , SAUDI ARABIA.

 LEGAL SYSTEM DEFINED

Legal system: the mechanism for creating,

interpreting, and enforcing the laws in a
specified jurisdiction.

Generally, differences in the structure of law

influence the attractiveness of a particular
country as an investment site.
 LEGAL SYSTEM SHARE THREE
COMPONENTS

1. A system of constitutional law designed to guarantee an open and

just political order

2. A system of criminal law designed to safeguard to social order

3. A system of civil and commercial laws designed to ensure fairness

and efficiency in business transactions.
 TYPES OF LEGAL SYSTEMS

Common Theocratic Customary Mixed

Civil Law
Law Law Law System
 TYPES OF LEGAL SYSTEMS

• Common law [based on tradition, judge made precedent and usage, and it assigns a preeminent
position to existing case law as a guide to dispute resolution] Developed by the judges through
the decisions of courts. E.g Canada, India

• Civil law [based upon a set of laws that comprise a code/a systematic and extensive
codification of laws.] Based on strict application of statutory law. Used across approximately
150 countries. E.g France, Mexico, Japan

• Theocratic law [based upon religious and spiritual principles to define the legal environment.]
Based on the inspirations and instructions of religious teachings. E.g Iran, Kuwait
 TYPES OF LEGAL SYSTEMS

• Customary law [anchored in the wisdom of daily experience or important

traditions. Still, in many country with mixed legal systems, it sometimes plays a
significant role in evaluating matters of personal conduct.

• Mixed system [it emerges when a nation’s system engage two or more of the four
legal system.
LEGAL ISSUES IN INTERNATIONAL
BUSINESS
• Operational concerns
• Ease of entry and exit
• Hiring and firing employees
• Contract enforcement
• Strategic concerns
• Product safety and liability
• Marketplace behavior
• Product origin
• Legal jurisdiction
 ECONOMIC ENVIRONMENT

• Introduction
• Company managers study economic environments to estimate how trends affects their
performance.
• A country’s economic policies are a leading indicator of governments’ goals and its planned
use of economic tools and market reforms.
• Economic developments directly impacts citizens, managers, policymakers and institutions.
• Understanding the economic environments of a country helps managers better appraise how
developments and trends have and will likely affect their companies performance.
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ELEMENTS OF THE ECONOMIC
ENVIRONMENT / MEASURES OF
ECONOMIC PERFORMANCE

• Gross national income (GNI)

• Gross domestic product(GDP)
• Per capita income
• Purchasing power parity
• Degree of human development 24
 Elements of the Economic Environment

• Gross national income(GNI) – measures the income generated both by total domestic
production as well as the international production activities of national companies.

• It is the measure of economic activity for a country.

• GNI is the value of all production in the domestic economy plus the net flows of factor
income(such as rents, profits, and labor income, interest and dividends) from abroad during a
one-year period less similar payments it has made to other countries.

• Technically, GNI is the market value of final goods and services newly produced by domestically
owned factors of production.
 ELEMENTS OF THE ECONOMIC
ENVIRONMENT

• Gross domestic product (GDP) – GDP is the broadest measures of economic activity for a
country.

• An essential part of GNI is gross domestic product(GDP) : “the total value of all goods and
services produced within a nation’s borders over one year, no matter whether domestic or
foreign-owned companies make the product.

• As such, GDP is especially useful for assessing countries in which the output of the multinational
sector is a significant share of activity.

• Technically, GDP plus the income generated from exports, imports and the international
operations of a nation’s companies equals GNI
 ELEMENTS OF THE ECONOMIC
ENVIRONMENT

• Per capita conversion – managers transform GNI, as well as many other economic indicators, by the
number of people who live in a country. This conversion leads to a per capita estimator that measures a
country’s relative performance.

• Technically, compute per capita GNI by taking the GNI of a country and converting it into a standard
currency---say U.S. dollar, at prevailing market rates---and then dividing this sum by its population.

• This along with other per capita indicators, helps to explain an economy’s performance in terms of number
of people who live in that country. E.g. GNI may be low in absolute terms such as the case for
Luxembourg, which ranks among the smaller economies of the world. But it ranks first in the world by GNI
per capita.
 ELEMENTS OF THE ECONOMIC
ENVIRONMENT

• Purchasing power parity – purchasing power parity (PPP) is a theory of long-term

equilibrium exchange rates based on relative price levels of two countries.

• Managers, when comparing markets, often convert the GNI figure in one nation in terms of
the currency of their home market. This simple conversion greatly refines economic
analysis.

• Technically, PPP is the number of units of a country’s currency required to buy the same
amounts of goods and services in the domestic market that one unit of income would buy in
the other country.
 ELEMENTS OF THE ECONOMIC
ENVIRONMENT

• Degree of human development – GNI, including its expression in terms of per capita,
growth rate, PPP, profiles growth and development in an economy.
• Mangers can deal with these concerns by looking at a country’s degree of human
development-in terms of both economic and social factors-to estimate its current and
future economic activity.
• The human development index (HDI) provides a more comprehensive measure that
incorporates both economic and social variables. It is designed to capture long-term
progress rather than short-term changes.
• HDI is a composite given by income, education and life expectancy at birth.
END OF MODULE 1

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