International Business

The Environmental Challenges

Prof Bharat Nadkarni

International Business : Prof Bharat Nadkarni

The Environmental challenges

Substantial challenges face any organisation intent on getting
to the future first. The first challenge, how to navigate from
here to there arises as both public and private institutions
struggle to plot a course through and increasingly inconsistent
environment where experience is rapidly devalued and familiar
landmarks no longer serve as guideposts. Never before has
the institutional terrain been changing so quickly or have
industry boundaries been so malleable. Never before have
competitors, partners, suppliers and buyers been so
indistinguishable. How, then, does one get to the future first
even when there is no map?
(C K Prahalad and Gary Hamel in the preface to Competing for the future)

International Business : Prof Bharat Nadkarni

What makes business different are the differences in the

environment and eventually may make the international
business strategy different from the domestic one. A detailed
analysis of the business environment of the foreign countries
is, therefore, an essential prerequisite for formulating
international business strategies.
As Cateora point out the key to successful international
business is adaptation to the differences in the environment
that usually exist from one country to another. Adaptation is not
a passive process but a conscious effort on the part of the
international player to anticipate the influences of both the
foreign and domestic uncontrollable environments on a
business strategies and then to adjust the strategies to
minimise their efforts.

International Business : Prof Bharat Nadkarni

The root cause of most international business problems is the

Self Reference Criterion (SRC) in making decisions, that is,
an unconscious reference to ones own cultural values,
experiences and knowledge as the basis for decisions. The
SRC is one of the most difficult to break Lee.
Ex. P & G stormed into Japanese market with American
products, American managers, American sales methods and
promotion strategies. The results were disastrous until the
company learnt how to adapt product and marketing styles to
Japanese culture. Similarly, the American company, Texas
Instruments which started making semi-conductors in Japan
took an American approach to hiring, pay and benefits,
dismissing the Japanese system of offering bonuses two times
a year as impractical. The workers disagreed, morale crumbled
and the company had trouble recruiting employees.

International Business : Prof Bharat Nadkarni

Later, when company adopted the Japanese methods of

recruiting and reward including bonuses and a promotion
system based on seniority, the situation vastly changed.

Key Environmental factors relevant to International Business

1. Social & Cultural environmental factors
include Demographic factors
2. Technological environmental factors
3. Economic environmental factors
4. Political and Government environmental factors
5. International trading environmental factors
6. Natural environmental factors

International Business : Prof Bharat Nadkarni

1. Social & Cultural environment

Religious factors

Language

Customs, Traditions & Beliefs

Tastes & Preferences

Buying and Consumption habits

International Business : Prof Bharat Nadkarni

Cultural Universals
Irrespective of the religion, race, region, caste, etc., all of us have more or
less the same needs. These common needs are referred to as Cultural
Universals and identified as cooking, dancing, singing, education,
athletic, sports, bodily adornment, joking, kin groups, status differentiation
and dream interpretation.
The cultural universals enable businessmen to market the products in many
foreign countries with modifications. For example, TVs, cars, video games.
Culture is not a barrier to computer software.
As such, computer software industry of the USA, Europe and Australia has
been attracting most of the Indian computer software engineers. Other
examples include diamonds, gold ornaments, flowers which have worldwide
demand.
Many managers felt that Japanese would not eat black food, when
Yamazaki-Nabisco thought of introducing Oreo cookies in Japan. But Oreo
cookies became number one cookies in Japan.
Cultural Universals do not mean that two cultures are not very much close
to each other.

Safe rules in International Communication.

Speak to the rest of the world as
if you were answering a slightly deaf,
very sick old auntie,
who just asked you how much to
leave for you in her will.

A prolonged eye-to-eye contact is polite in the

USA and rude in Japan, Indian and Sino
cultures.

International Business : Prof Bharat Nadkarni

Demographic environment

Size of population, Growth rate

Age composition

Family size, Nature of families

Income levels

International Business : Prof Bharat Nadkarni

2. Technological environment

Type of technology in use

Level of technological development

Speed with which new technology is accepted and adopted

Technology which is appropriate

International Business : Prof Bharat Nadkarni

3. Economic environment
Nature and level of development of economy

Economic resources

Size of economy

Economic system and policy

Trends in GDP/GNP growth rate, per capita income

Nature and trends of foreign trade

Domestic demand and supply conditions

(Out of 200 nations, 75% are developing nations having 80% of population. Only 54
nations have high income economies.)

International Business : Prof Bharat Nadkarni

4. Political & Government environment

Political parties
Radical differences
Fundamentalists
Govt. system
Liberal or Conservative policies

International Business : Prof Bharat Nadkarni

5. International trading environment

Trade barriers
Tariffs
Non tariff barriers

Import licensing, quotas, foreign regulations, canalisation,

quantitative restrictions --- normally applied by developing
countries.

Voluntary export restraint (VER) which is normally applied

by developed countries (protection for those companies
who have lost international competitiveness)

International Business

Objectives of Trade Barriers

1. To protect home industries from foreign competition
2. To promote new industries and Research & Development
3. To conserve Foreign exchange reserves
4. To maintain favourable Balance of Payment
5. To protect economy from dumping
6. To curb conspicuous consumption
7. To make economy self reliant
8. To mobilise public revenue
9. To counteract Trade barriers imposed by other countries

International Business : Prof Bharat Nadkarni

6. Natural environmental factors

Natural Resources

Absolute advantages

History: Learning and adaptation

(ex North and South Indians)

Can Negative Perceptions Dampen International Business

Relations?
Japan and China would seem to be natural economic partners,
given that they are geographically so close to each other.
However, Japanese companies currently lag behind both the
US and Europe in terms of trade with China. Although the
Japanese auto industry has had enormous success in other
countries, including US, the top selling foreign cars in China are
produced by GM and Volkswagen and not Toyota or Nissan.
Also, Japans booming electronics industry currently captures
only 5 percent of the Chinese market. But who or what is to
blame for the dismal business relationship between Japan and
China? The perceptions of the people in both countries may
be the answer. For example, many Chinese citizens are still
angered about a report that employees of a Japanese
construction company hired Chinese prostitutes for a corporate

party. And many Japanese citizens believe that Chinese

immigrants are to blame for many of the violent crimes taking
place in Japan. In addition to these recent events, historically
relations between the two countries have been strained. Beijing
is still upset about Japans military invasion of China in the
1930s and 1940s, for which Japan refuses to make amends.
These negative perceptions may be difficult to reverse if
perceptual errors such as fundamental attribution error and the
halo effect are operating. That is, both countries blame each
other for their behaviours and both countries tend to view each
others actions negative. Because of these errors, future
behaviours, even if they are ambiguous, may be perceived
negatively by the other country.

International Business : Prof Bharat Nadkarni

Capitalism, Socialism and Communism Compared

Characteristics

Capitalism

Socialism

Communism

Economic Markets

Freedom to compete Limited competition

with right to invest. with state owned
industries.

Absence of
competition with
state owned markets
and industries.

Individual incentives

Profits and wages in

relation to ones
ability and
willingness to work.

Profits recognised.
Wages fairly in
relation to efforts.

Profits not allowed.

Workers urged to
work for the glory of
the state.

Capital Sources

Capital invested by
owners who may
also borrow on
credit. Capital may
be re-invested from
profits.

Obtained from
owners and from
state issued bonds
for state-owned
industries.

State provides all the

resources to start
business owned by
the state.

International Business : Prof Bharat Nadkarni

Capitalism, Socialism and Communism Compared

Characteristics

Capitalism

Socialism

Communism

Labour

Workers are free to

select an employer
and an occupation.

Workers allowed to
select occupation.
State planning
encourages
employment.

The state
determines ones
employer and
employment.

Management

Managers are
selected on the basis
of ability. Managers
have freedom to
make decisions.

Managers in stateowned industries are

answerable to the
state. Non monetary
rewards emphasised

Key managres must

be party members.
Absence of freedom
to make decisions.

Business Ownership

Individuals have a
right to own a
business and to
contract with others.

State owns the basic

industries. Other
businesses may
exist.

State owns all

productive capacity.

International Business : Prof Bharat Nadkarni

Capitalism, Socialism and Communism Compared

Characteristics
Risk Assumption

Capitalism
Losses assumed by
owners. May
transfer business
risks to other
businesses through
insurance.

Socialism

Communism

People assume risks

of state-owned
industries. Losses
taken from taxes.

Economic
production owned
by the state. Risks
assumed by the
state. Losses reduce
standard of living.

Class Exercise

Country Evaluation & Selection - Criteria

Select one country (Not India) and
project the salient features of
attractiveness for International Business.
Recommendations.

Thank you