International Business

INTERNATIONAL BUSINESS
(Country Evaluation)

CULTURAL ENVIRONMENT

CULTURE
Culture is, “the thought and behavior patterns that member of society learns through language and other forms of symbolic interaction.”
Culture factors in various countries of the globe affect the international business.

Example : Prohibition Of Alcoholic At Different Degrees In Different Countries.

Cultural Attitude & International Business:
 Dressing habits, living style, eating habits and other consumption patterns, priority of

need are influenced by culture.
Example : Beef consumption. However, the foreign culture regarding food has been adapted  Similarly, dressing habits also vary from country – to- country based on their culture .  The international businessmen should eliminate the social, religious and cultural effect in order to understand the foreign cultures. Example: Indianizing all the MC Donald‟s way.

 Cultural Universal: 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‟.  Communication Through Languages: There are safe rules in international communication.  People also communicate through non- verbal medium . Example : eye-to- eye contact.  Time and Culture  Space and Culture: Space between one person and another person plays significant role in communication.  Culture of Friendship  Culture and Negotiations

 Culture and Superstition
 Culture and Gifts

POLITICAL ENVIRONMENT

Types of Political Systems
Two-party system Multi-party system Single-party system One-party dominated system

Political Risks
Confiscation Expropriation

Nationalization
Domestication Operation risk

Country Evaluation & Selection
Environmental scanning Strict Bureaucracy & higher order Red Tape increases cost of doing business as well as create greater inconveniences for business to carry-out their operations Monetary risks are concerned with foreign exchange fluctuations, restrictions on FDI & limits on the repatriation of profits

Legal & Political Environment Companies may establish manufacturing facilities in foreign countries rather than exporting owing to high tariffs & restrictions in those countries. For example: Russia‟s political factors create risk while economic factors provide tremendous opportunities.

ECONOMIC ENVIRONMENT

Economic Systems
 Capitalist Economy  Communist Economy  Mixed Economy

Classification of countries based on Income
 Low Income Countries: USD 755 or less  Lower middle Income Countries: USD 756 to USD 2,995

 Upper middle Income Countries: USD 2,996 to USD 9,265
 Higher Income Countries: USD 9,266 or more

Comparison of capitalist, communist & mixed economy
Characteristics
Economic Markets

Capitalist Economy
Freedom to compete with right to invest

Communist Economy
Limited competition with state owned industries

Mixed Economy
Absence of competition with state owned markets & industries Profits not allowed. Workers urged to work for the glory of the state State provide all resources to start business owned by the state. No depreciation.

Individual Incentives

Profits & Wages in relation Profits are recognized and to one’s ability & wages in relation to efforts willingness Capital invested by owners, may be reinvested from profits. Depreciation is legal. From owners or stateissued bonds for state owned industries. Depreciation permitted.

Capital Sources

Labor

Workers are free to select an Workers allowed to select employer and an occupation. occupation. State planning encourages employment. Managers are selected on the Managers in state-owned basis of ability. They have industries are answerable freedom to make decision. to the state. Non-monetary rewards emphasized. Individuals have the right to State owns the basic own a business & to contract industries. Other with the others. businesses may also exists. Losses assumed by owners. May transfer business risks to other businesses through insurance People assume risks of state-owned industries. Losses taken from taxes.

The state determines one’s employer and employment. Key managers must be party members. Absence of freedom to make decisions. State owns all productive capacity including communes. Economic production owned by the state. Risk assumed by the state. Losses reduce standard of living.

Management

Business Ownership

Risk Assumption

Source: Introduction to Modern Business-Issues & Environment

Macro-Economic issues affecting Business Decision
 Economic Growth
 Balance of Payments

 Inflation
 Economic Transition

Country Evaluation w.r.t. Economic Environment
 Cost & Availability of Inputs  Proximity to Conglomeration of Markets  Exchange Rate fluctuations  Market Centres & their Potential

Websites to Refer


http://globalEDGE.msu.edu/resourceDesk/mpi

 www.transparency.de/

 http://blogs.reuters.com
http://www.imd.org/research/publications/wcy/u pload/scoreboard.pdf