PEST Factor

And
International Business
 Environment for International Business
• Political - High political risk - Pakistan
• Economical - Zimbabwe Inflation rate - 385 %
• Social - Europe V/s China
• Technological - Use of Computers
• Legal - 31 Indian states - Own Sales Tax law
• Competitive - One of the cultural event in Brazil
Similar carnival in Thailand
India – Goa Carnival

• Natural - Earthquake in Indonesia / Tsunami

 POLITICAL
ENVIRONMENT
 Political Environment
• Home Country Political Environment
♦ To encourage in core competency sector
♦ India – Steel, Healthcare, Pharmaceutical,
Textile etc
♦ Merit
– To know the reserves of foreign currency
-- To know the friend group countries.
-- To evaluate the country image
♦ Demerit
-- Difficulties in evaluating the country image
-- Distortion in level of information
 Political factor affecting business
• Tata Nano the rear-engined, four-
passenger city car built by Tata Motors,
aimed primarily at the Indian market. It is
the cheapest car in the world today
• TATA Nano Motors in Singur plant W.B
Location shifted to Gujarat due opposition
from Mamata Banarjee –Political Leader
PASCO
South Korea investment in India
The $12 billion Pohang Iron and Steel
Company (POSCO-South Korea) project in
Orissa is the largest foreign investment
project ever in India
23 June, 2005: Global steel giant POSCO
signed a Memorandum of Understanding
(MoU) with the Government of Orissa in
Bhubaneswar for the construction of a steel
plant as well as development of iron ore
mines in the state

The Posco Pratirodha Sangram Samiti

(PPSS), the organization at the forefront of
the anti-Posco agitation in the state
• The Orissa govt The project by the It was only after five years of signing the
stopped land South Korean steel MoU, the deadlock broke when the
acquisition for the giant has failed to take POSCO Pratirodh Sangram Samittee
proposed Posco off for five years due to (PPSS), a local outfit spearheading the
steel facility in opposition by local agitation, agreed to allow the official to
Jagatsinghpur people
district even as it conduct the socio economic survey after a
denied having • discussion with the Chief Minister, who
Opposition to Reliance SEZ in Navi
 Political Environment
• Host Country Political Environment
♦ Whether hospitable or not
♦ Govt. policy for foreign players entrance
♦ 1977 India banned foreign brands;
Israel (National Religious Party) McDonalds
♦ Merit
-- In identification of govt. preferential sector
-- In estimation of business security
-- To know the per capita income & GDP
♦ Demerit
-- Uncertainty of life of the govt. and its survival
-- Dominance of govt. on market mechanism
 Political System Risk
• Political systems can be classified based on the party system in the
society, and mode in which governments attain power.
• Based on the way governments come into power, they can be
classified into parliamentary type or absolutist type. The citizens elect
parliamentary governments. Absolutist governments are not elected.
They come into power by force.
• Based on the number of parties active in a country, the political
establishment can be classified into four types: single-party, two-party,
multiparty, and one-party dominated systems.

• Although China has moved from a centrally planned economy to a

market-oriented one, the political system has remained the same.
• The Communist Party of China (CPC) still reigns supreme.
• The leaders of the CPC take the major policy decisions that determine
the future of China.
• The final authority rests with the 21-member CPC politburo. Major
power centers in China are: Conservatives, Liberals, the current
President Hu Jintao, the former President Jiang Zemin, Labor, Military,
and Pragmatists.
 Political Environment
• Global Political Environment
♦ Combined political environment
♦ It includes multilateral agreements
♦ GATT, WTO, UNO, Commonwealth nations
♦ Merit
-- Uniformity in the business pattern
-- Free Trade Zones
♦ Demerit
-- Colonial development of country group
-- Unethical dominance and preference
[ In 1991 UNO and declarated Iraq illegal]
 Country Risk
• Country risk refers to the risk of investing in a country,
dependent on changes in the business environment that may
adversely affect operating profits or the value of assets in a
specific country.
For example,
• Financial factors such as currency controls, devaluation or
• Regulatory changes, or
• Stability factors such as mass riots, civil war and
• Other potential events contribute to companies' operational risks
• All business transactions involve some degree of risk. When
business transactions occur across international borders, they
carry additional risks not present in domestic transactions. These
additional risks, called country risks
• These typically include risks arising from a variety of national
differences in economic structures, policies, socio-political
institutions, geography, and currencies.
• Country risk analysis (CRA) attempts to identify the potential for
these risks to decrease the expected return of a cross-border
 Political Risk
San Suu Kyi
• Foreign Politics -
related to one country
• International Politics
Example - USA impact on
many countries
• Nature of Political Risk
• Factors that Contribute to
Political Risk
• Social Unrest
Attitude of Nationals
Policies of the Host
Government
Example – Enron in India
Thailand
India
• Risk assessment requires analysis of many
factors, including the relationships of various
groups in a country, the decision-making
process in the government, and the history
of the country
• Thailand – Political battle distrubed
Economic development
The government and supporters of coup-ousted
former prime minister Thaksin Shinawatra has
moved off the streets and into the courts,
His autocratic style and self-serving economic
policies, however, turned the Bangkok middle
class and political elite against him. He was
overthrown by a coup Sep 19, 2006.
 Pakistan
• Pakistan's political system is broken: its political parties are ineffective,
functioning for decades as instruments of two families, the Bhuttos and the
Sharifs, two clans, both corrupt. The Bhutto-Zardari axis may be considered
"left leaning," while the Sharif brothers may be considered "right leaning." The
Sharifs are much closer to Pakistan's military, and to Pakistan's Muslim
fundamentalists
Pakistan is
Highest
political risk
due instability
and threats
from Taliban

• political risk providers tend to use qualitative methods, focusing on

political analysis. However, there is no consensus on methodology in
assessing credit and political risks.
• Political risk is more in Pakistan than Somalia
 INDIAN POLITICAL SCENARIO
◙ Politics is to government. And govt. determines
the economic and business policies.
◙ The two major institutions of society are
Government and Business.
◙ They together constitute the public policy and
economic environment for a nation.
◙ Each economic decision often based on some
political ethics and beliefs.
◙ Since independence Indian policies were based
on the principle of socialist pattern of society
(except 1977-1980) and resulted in public sector
dominated development strategy until early 1990.
◙ Many political decisions have serious
implication on business and economy as:
● Industrial Policy
● Policy towards foreign capital & technology
● Fiscal Policy
● Export Import Policy etc.
◙ Govt. has normally 3 sets of power, each
with an assigned role.
● Legislature – To make the law.
● Executive (Govt.) – Implementing the law
● Judiciary – Interpreting & Applying law.

,
 Economic Role of the
Government
Govt. generally have four important role to play in
an economy as, Regulation, Promotion, Planning
and Entrepreneurship.
■ Regulation :
● To guide the overall pace of economy and to pave
its direction.
● These controls are of two types – Direct and
Indirect.
● The direct control works outside the market system
whereas in indirect controls works within the market
system.
● This is to stabilize demand and supply ratio.
E.g.-If govt. wants to reduce the demand of goods
Direct Control
It will impose rationing/quota system OR
Impose tax on personal income to reduce
purchasing power OR
Impose indirect tax on goods resulting price
rise.
Direct control may have more drastic effect.
Because of its discrete nature it has selective
application from firm to firm and from industry
to industry and much tactical .
Indirect Control
● To encourage or to discourage certain business
activities through indirect involvement of the govt.
● Indirect control are usually applied through
different fiscal and monetary incentives, penalties
or disincentives.
E.g. – A high import duty may discourage more
production resulting in less supply and in effect
cause price rise resulting in reduce demand.
Or
Fiscal or monetary incentives on export may
encourage the development of export oriented
industries.
■ Promotion :
● In this role govt. facilitates to encourage business
as well as economic environment of the nation.
● In general it contributes to infrastructural
development of the nation such as, power, transport,
road, bridges, market, training and guidance etc
besides safety and security.
● Nation also sometimes encompass the provisions of
various fiscal, monitory and other benefits Including
risk cover to develop certain priority sectors and
business activities.
● Govt. sometimes also transfers infrastructural
ownership on business firms to make them more
responsible and accountable for the business.
■ Entrepreneur :
● In role of establishment and operation of
business enterprise and bearing the risk.
● In situation such as scarcity of private
enterprise, neglect of less or unprofitable sector,
socio-political ideologies, absence of inadequate
competition, unable to meet the demand, where
resources are insufficient, to support other
industrial sector etc. have vital role in the
development of SOEs.
● In general it occurs in capital intensive projects,
life related and low profit estimation and project
related to fundamental right.
■ Planning :
● In role of a long term planner and initiator of project
as govt. is accountable for the welfare of society.
● Where at least uniform and continued support is
essential towards other industrial sector.
E.g. – Mother plant.
● How to use resources for best advantage as they are
not abundant.
-- To see the resources are directed for right purpose.
-- To ensure that it will go to common pool of
development.
-- To match with the growth estimation.
-- To restrict over and under utilization.
 The Indian Political Legal System
► The govt. has to set the legal framework within which
business firms needs to smoothly operate.
► All legislations are not always relevant and applicable for
all business firms.
► Legislation can be of two prime functions based on its
purpose as,
-- Facilitatory role
To define property and business organization separately
Company Law – Establishment of corporation within
company law.
Contract Act - Rules for systematic exchange transaction.
Bankruptcy – To meet and fulfill minimum obligation and
promises.
-- Restrictive role
To restrict business firm indulging in unfair practice.
MRTP Act – Adopted in 1969. In 1970 MRTP Commission
was set up to overcome flaws and demerits.
But diluted due to several amendments and consequently
in question.
Get replaced by the Competition Act of Nov. 2002 on the
recommendation of Raghavan Committee.
FERA Act – Passed in 1973 to directly regulate the
foreign exchange related transaction.
Due to more stringent in nature it was highly debated and
critical in business firm.
Replaced by Foreign Exchange Management Act (FEMA)
◙ However there are some legislation which has
dual
Characteristics.
-- The Industries (Development and Regulation)
Act
Passed in 1951 for development and regulation
of
industries in private sector. But it primarily
resulted in regulatory role.
-- Capital Issues Control Act – Passed in 1947
with a view to promote private corporate sector
on sound lines.
Replaced by SEBI Act of 1992.
SEBI Act also facilitates and regulates the
 ECONOMIC
ENVIRONMENT
 Type of Economies
Based on the ownership of the means of production, economies it
can be classified into
1. Capitalist economy
2) Socialist economy and
3) Mixed economy
1. Capitalism is an economic system characterized by private
ownership of productive goods and services.
2. Socialism is an economic and political system in which private
property is abolished and the means of production (i.e., capital
and land) are collectively owned and operated by the state.
3. In a mixed economy, some of the means of production are
owned by the government while some is held by private
individuals.
Based on their level of development countries can be classified into
"developing countries" and "developed countries." The World Bank
relies on income levels to classify countries into these two
categories.
 Economic Environment
• Home Country Economy
♦ It must encourage the business community to venture overseas
♦ The country must have liberal economic and trade policies
♦ This is dependent on 3 considerations as,
▪ Economic Policies
-- It is designed and aimed on the business avenues and the
opportunities in other countries
-- This is decided by the ministry of finance
▪ Trade and Commercial Policies
-- The trade policy is announced by the ministry of commerce and
industries
-- This is to facilitate international business through local partners
-- This is essential to promote the home country in foreign market
place
▪ Promotional & Regulatory Measures
-- To extend fiscal and promotional support to take risk
-- To remove exchange control restrictions
-- To enforce foreign trade economies
 Economic Environment
• Host Country Economy
When one country enters in any other country the following
major criteria are considered :
♦ Market size of the country
♦ GDP and the Per capita income
♦ Level of industrialization
♦ Banking facilities
♦ Purchasing power of the people
♦ Foreign exchange facilities for transaction
♦ The stage of economic development
♦ Other countries and the firms are on fray and competition
♦ Income level of the market
♦ Industrial priority sector
♦ Economic diversity
♦ SEZs if any
 Economic Environment
• Global Level of Economy
• There are some other decisive factor that influences the
direction and magnitude of the international business
• The decision, approach and the criteria of these factors
decides the level of international business
• The 5 universal decisive factor are
♦ The WTO
♦ The World Bank
♦ The International Monetary Fund
♦ Continental Development Bank (Asian/European etc.)
♦ OPEC (Organization of Petroleum Exporting Countries)
• Some other regional alliance forces which can have
negative impact on trade between outside cartels and non
members such as,
♦ ASEAN, NAFTA, EU, SAARC etc.
Some facts in relation to Indian economy
• Even though India is fast growing economy and
emerging market in the world, the country has been
named as the 2nd last globalization nation in 62
nation. (Year 2006 position - 61 out of 62 )
• International consultancy and private research firm
AT Kearney has ranked India at the 71th place in its
annual ranking of world’s most globalized nation
• 70% population lives in rural area
• 50% population under load shading
• Only 2% use of internet transactions
 Economic Risk
• Financial risk analysis providers and credit rating
agencies use different methodologies to assess and
rate countries' comparative risk exposure.
• Credit rating agencies tend to use quantitative
econometric models and focus on financial analysis
They are
♦ The interest rates
♦ The monetary exchange rates and
♦ The inflation ratio
• Non payment from buyer (importer)
Chinese importer refuse to pay money to Indian exporter
• Unexpected Insolvency of involved parties
 Economic Risk
• The worldwide diversification of the economy
• The degree of reliance on the involved parties
• Only a few key exports and the effects of a
decline in the worldwide prices of those exports
• Exchange rate devaluation
• Frequency of government intervention in the
money market
• The ceilings of interest rates
• Possibility of recession
• Non payment from foreign buyer of export
proceeds due to non availability of foreign
exchange reserves
•
 Economic Integration
• A group of counties come together and agree to
cooperate in international trade by various means
• Preliminary for their economic advantages
• These economic advantages incorporates
♦ To create trade
♦ To establish trade diversion
♦ To reduce the import prices
♦ To increase competition
♦ To accelerate their economies scale
♦ To maintain the higher productivity
♦ To regulate their economical identity
♦ To foster their power in the international markets
 Levels of Economic Integration
• Regional Cooperation Groups
• Free trade areas
• Full supportive union
• Common market
• Economic union
• Unified transaction pattern
• Counter trade

Key Economic Parameters

• Level of economic growth
• Inflation Rate
• Basic Infrastructure
• Balance of payment
• Nations in transition
Economic Environment

SWOT
Analysis of
Indian Economy

The Salient Features

Strengths :
● Huge pool of labour force.
● High percentage of fertile land.
● Diversified nature of economy.
● Huge English speaking population
● Availability of skilled manpower.
● Somewhat stable economy.
● High growth rate of economy
● Extensive higher education system
● Rapid growth of IT and BPO sector
● Abundance of natural resources.
Weakness:
● Very large percentage of workforce involved in
agriculture. Which contributes only 23% of GDP.
● Some ¼ of population is below poverty line.
● Poor infrastructural facilities.
● Low productivity.
● Unequal distribution of wealth.
● Red tapism and Bureaucracy.
● Low literacy rate.
● Huge population leading to scarcity of resources.
● Low level of mechanization.
● Rural-urban divide. Inequality in living standard.
Opportunities:
● Scope of entrance of private firms in various sectors of
business.
● Inflow of FDI is likely to increase in many sectors.
● Huge foreign exchange earning prospect especially in IT
& ITES sectors.
● Investment in R & D and engineering design.
● Area of Biotechnology & Healthcare (Yoga).
● Huge population of NRIs.
● Huge market. Opportunity for MNCs for local sales.
● Huge natural gas deposit.
● Vast forest area and diverse wildlife.
● Huge agricultural resources, fishing, livestock, plantation
crops.
● Enthusiastic young generation.
● Government concern in infrastructural sector.
Threats:
● High fiscal deficit.
● Threat of government intervention in some states.
● Coalition government culture.
● Investment in R & D and engineering design.
● Volatility in crude oil prices across the world.
● Growing import bills.
● High population growth rate.
● Agriculture excessively dependent on monsoon.
● Incapability of taking vast decision on time by
coalition government.
● Personal interest is superior than national interest.
SOCIAL & CULTURAL
ENVIRONMENT
Social & Cultural Environment
 Understanding the culture of a particular
country and respecting its customs and
traditions plays an important role in
international business
 There are various elements of culture, like
customs, traditions, mannerisms, values,
beliefs, attitude, religion etc. that are of
importance to international business
 All these elements have to be thoroughly
understood before entering new markets.
The culture of the country influences the
culture at the workplace
 Social Factor of Business
• Each business unit needs to formulate its strategy
and business plans considering the socio-cultural
environment of the host nation
Points to consider :
● Social environment comprise of customs, habits,
education, attitudes, beliefs, values, language and other
forms of interaction between the members of the
society.
● Whether the society is modern, conservative, racial,
orthodox etc.
● This identifies the behaviour of the audience.
● This guides the purchase decision of potential buyers.
A passing view on culture
MODERN CONSERVATIVE RACIAL ORTHODOX

Liberal by nature Not Liberal Not readily Very authentic

Not rigid in Limited consumption Mostly traditional Compromise to some

consumption habits habits consumption habits extent

More receptive to new Only tried and Inclined towards To some extent
product tested product new product

Accepts all Not at all Shows interest. May More Cultural bound
advertising messages or may not

More health Customs are Own way of Accepts such

conscious superior and not the justification concern
health
Majority are Quality Not quality Mostly volume Varies as per
conscious conscious conscious perception
 Social & Cultural Impact
• Offering “Bali” to godess Kali during
Navratri in in eastern Indian states in
Western Indian states “Dandia &
Garba”
• Lord Ganesh eating Modak as prasad
• Tirupati Balajee prasad is Laddu
• Lord Ganesh in Navi Mumbai &
Thailand (different forms)
• Selling of greeting cards for Valentine
Day is risky affair due to opposition
from political parties
• Wine is banned in Gujarat &
Tamilnadu – Problem for EU-27
 Cultural Variants
• Dressing habits – Gulf and India
• Each Indian states – Own
dressing style
• Living styles – Festival and
dance
• Eating habits Pizza V/s Jhunaka
Bhakar ?
• Vegetarian V/s Non Vegetarian in
India (Highly debatable)
• Chinese food
• Iraqis and Afghans eats dry fruits
as regular food
• Arab eats Basmati Rice
• Languages -16 Languages in
India
Cultural Differences
Brazil V/s Indonesia

China V/s Uganda

 Involved Social Risk
• When a firm operates in an
international business
environment, as an individual is
bound by the society in which he
lives, it needs to understand the
importance of society
• Social class is an important part
of the society. In majority of
societies, these classes are
classified mostly as upper, middle
and lower
• The perception level of each class
and their frequency of buying
goods differ from one country to
another
 Social Factors
• Beaf and pork cannot be exported from
India
• Caste factor in India
• Religion – Jain Shewtambar V/s
Digambar
• Hindu- Kumbhamela
• Muslim – Muslim law in gulf – eye for
eye camel race
• Marriage ceremony – Wastage of time &
money
• People to work – Asia v/s America
• Attitude to wealth
• Level of Education
• Ethics and Social responsibilities
• Crime Rate - Looting, Illegal
Excavations, Theft, War
 Social Unrest in Pakistan

• Attack on Sri Lankan Cricket Team

• The recent wave of killings and arson has left more than
1000 people dead in last 10 days.
• Areas like Orangi Town, Qasba Colony and Katti Pahari are
severely effected while Hassan Square, Old Sabzi Mandi,
Gulistan-e-Johar and other parts of Karachi have
experienced their share of bloodshed and terrorism
• Arab women wear the Naqab, a face-covering Islamic dress for
females

• India is the land of old social traditions and religious practices

and one of bad religious practices of Devadasi is still prevailing
 Terrorism & Maoists - Major Threat to India

• Middle East
• Iraq
Iran – nuclear ambition, internal consternation
Israel – Israeli cycle of violence with Palestine
• Asia Afghanistan – Talibanian culture + Idol of Bhudha broken
by Taliban
• Indonesia – Jemmaithe Islamia and Al-Qaeda’s – The kissing
cousins
• Philippines – domestic terrorists
• India –Threats from 1)Terrorism 26/11 2) Maoists – Andhra
Pradesh, WB, Jarkhand & orissa
TECHNOLOGICAL
ENVIRONMENT
• Technology is the knowledge or methods that are
necessary to carry on or to improve the existing
production and distribution of goods, services, products
or processes, and also includes entrepreneurial
expertise and professional know-how
• The choice of technology for a company must depend
on the type of competitive advantage it seeks to
develop. Such a choice can complement the firm's
competitive advantage
• The technology chosen must be in tune with the firm's
overall strategies. A thorough analysis of all the firms'
available technologies is necessary to identify areas
where there is scope for cost minimization or product
differentiation
 Technological Environment
♦ It refers to skill, knowledge and procedure.
♦ Technology determines the stage of systematic
knowledge.
♦ It represents and examines the impulsive potential of
development.
♦ It includes tools to promote progress and uplift society.
-- Hard Technology : To upgrade the product quality.
-- Soft Technology : To uplift the production techniques
Besides this it also includes ● Entrepreneur expertise
● Professional know-how
These two together constitute for essential competitive
advantage for development.
♦ To plan a technological change in business the
needs are,
-- Current status of technology (SWOT).
-- The level of technological development needed
-- The pace to adopt new technology
-- The appropriate available technology
-- To consider the technology policy of the govt.
♦ Technology that determines and guides business
-- What to produce?
-- How to produce?
-- Product design based to need and want
♦ In business it often refers to production and
managerial activities.
♦ Invention and Innovation are must for
sophisticated and technically superior product.
-- Invention refers to altogether a new beginning
-- Innovation directs for upliftment
♦ Innovation may include :
-- Introduction of a product with new or additional
features.
-- The use of new production method
-- Opening of a new market
-- Identification of a new audience segment
-- New source of raw material or supply.
-- Reorientation of an industry.
♦ Innovation can be ascertained on basis of its
impact on change and its application.
♦ On basis of big or small impact it may be :
Radical Innovation – A basic technological
innovation that leads to a new function.
(Steam to steam engine)
♦ Incremental Innovation – An advancement in the
existing technology to improve features,
performance, quality, safety or lowers the production
cost.
(A shaft / governor on a steam engine)
♦ Next generation technology innovation –
Dramatically improvement. (Euro engines)
Advantages of Innovations :
-- To increase market share.
-- To capture entirely new market.
-- To create new market segment.
-- To create entirely new industrial sector or industry.
♦ Sometimes innovation does not yields expected or
perceived results and fails.
In situation such as :
-- Not perceived as a true innovation.
(Attachable cigarette filter)
-- Perceived as mere imitation. Often fails to intense
competition. New entrants to penetrate. Brand loyal.
Tough seasoned competitors.
-- Poor market mechanism – Inability to forecast
demand or supply. Fail to reach on time. Inadequate
promotional efforts.
-- Encompassing – Perceived as hazardous. Not
matching with the safety standards.
-- Fail to meet the exact expectation – Inferior quality
product. Fail to deliver the expected features.
-- Price war – Fail to convenience the perceived
value of the product with price.
Over estimation of the value of the product.
-- Eagerness on quick ROI with high price.
-- Or a multiple combination of these factors.
Demerit of Innovation :
● Displacement of labour.
● Lead towards unemployment.
● Ecological imbalance – pollution, machine use
● Dependency on machine
● Anxiety & insecurity rise.
● Craft and craftsmanship decline.
● Tend to change society culture (Joint Family) .
● Loss of personal identity (Tussar Silk)
● Requirement of huge resource
● High cost of scientific research for up gradation.
● Time buy (wait till urgent)
Merit to be a technology leader [Invention] :
● Upgrade the reputation of the firm.
● Expect a good firm position in market
● Switching production and selling cost.
● Unique access for new product (Value addition)
● Early profit opportunities.
● Away from competition.
● Proprietary prestige. Towards self reliance.
● First access to facilities.
● Dictate the standard definition for sometime.
● Guard of imitation for sometime. Monopoly.
● Tax relaxation as per the govt. rule.
Demerit to be a technology leader
(Invention) :
● Bear pioneer cost.
-- To get regulatory approval.
-- To attain code compliance.
-- Educate buyer.
● Direct involvement in counter competitors. (-ve publicity)

● To balance demand and supply ratio.

● Over changing buyer needs.
● Uncertain perceived value.
● Huge investment in resource allocation.
● Risk for the rejection of technology.
● Possibility of low cost imitation.
Technological Dynamics / Objective :
■ Innovative drive of a company.
■ Company strategy.
■ Consumer expectation
■ Consideration of latent demand.
■ Demand condition to supply
■ Attractive offers from suppliers
■ Competitive dynamics / Corporate image.
■ Possibilities of substitutes
■ Social forces: ecology, socio cultural dimension etc
■ Available research/technical orientation & facilities
■ Govt. Policy
 Mode of Technological Up
gradation
◘ Collaboration
◘ Merger / Acquisition / Amalgamation
◘ Technology Transfer
● Technical expertise
● Contract of technical Know how
● Supply of machines, equipments & raw
materials
● Fractural licensing agreement
● Turnkey Projects – Complex technology
◘ Technical Know how
 Technical Indian Scenario
◘ Emphasis on indigenous technology.
◘ Indigenous technologies incompetent to meet
global standards and perceived as costly affair.
◘ Dependency on labour incentive techniques.
◘ Reservation towards some products & sectors
◘ Inappropriate govt. support and policies.
◘ Trend of dependency on developed nations.
◘ Inability to demand forecast.
◘ Inability to speculate global movement
◘ Consideration as business liability.
◘ Lack of initiative measure. Unrisky wait & watch
 Technical Risk
• Innovation in communication
• Technology is application of % in total
knowledge investment for
Technology
• Technological environment has
Country
significant and direct influence
15%
on business in general and Austrelia

International business in China 12%

particular
• The different between two Japan 14%

countries is mostly reflected by New zealand 13%

level of economy
• Advance Countries invest Singapore 6%

considerably in R & D and new India 11%

technology
Korea 10%
 NATURAL
ENVIRONMENT
 Natural Risk
Sudden Natural Risks
• Earthquakes
• Floods
• Major Storms
• Landslides

Regular Natural Risks

• Rainfall
• Wind
• Temperature Changes
• Tsunami
• Storm
 Country Risk Analysis
Country risk analysis rests on the fundamental
premise that growing imbalances in economic,
social, or political factors increase the risk of a
shortfall in the expected return on an investment.
Imbalances in a specific risk factor map to one
or more risk categories
 Country Risk Analysis
• Mapping all the factors at the
appropriate level of influence
creates an overall Risk A B C

assessment of investment
risk. Political *
• The mapping structure
differs for each type of Economic *
investment, so an imbalance
in a given factor produces Social/Cultural *
different risks for different
investments *
Technology
• High risk-C
• Medium –B
• No risk –A Other-Natural *
• Total how many got A
• Advise to the company Total 2 2 1
 SUMMERY

• As firms have no control over the external

environment
• Their success depends upon how well
they adapt to the external environment.
• A firm’s ability to design and adjust its
internal variables to take advantage of
opportunities offered by the external
environment, and its ability to control
threats posed by the same environment,
determines its success.
 Risk Management
• The MNC have to manage the risks in order to reduce
the consequences by way of,
● Maintaining sound diplomatic relations with other
countries
● Estimating demand for the product in foreign country
● Insurance of various business operation
Some Precautionary Measures
● Insurance policy for damage of Export cargo
● Port assets and financial loss –Insurance JNPT port
● Oil Refinery - Jamnagar of Reliance By way of
reinsurance