Global Business Environment (MKG 305) Chapter-II BY: Dr Fayaz Ahmad Lone 2 1

Business Environments are divided into two primary Categories External & Internal 2

Business Environments Environments External GeneralCompetitiveInternal Resources Leadership 3

external environment The external environment encompasses all issues, occurrences, trends, etc. that are peripheral to the corporation and beyond the control of the BUSINESS ORGANIZATION. internal environment The internal environment relates to all aspects within the confines of the organization and generally are within the control of the business organization. Both environments exert significant influence over the formation of a company's strategy and its degree of success. 4

Cross-Cultural Business Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 5

Chapter Objectives Describe culture and explain the significance of national culture and subcultures Identify the components of culture and describe their impact on international business Describe cultural change and explain how companies and culture affect each other Explain how the physical environment and technology influence culture Describe two frameworks used to classify cultures and explain their practical use 2 - 6

What is Culture? What is Culture? Set of values, beliefs, rules, and institutions held by a specific group of people Cultural literacy Detailed knowledge of a culture that enables a person to function effectively within it √ Ethnocentricity Belief that one’s own ethnic group or culture is superior to that of others X 2 - 7

Culture Matters: Creating a Global Mindset CulturalAdaptabilityBridging the Gap Flexibility Is Key Building Global Mentality 2 - 8

National Culture Nation states build museums and monuments to preserve the legacies of important events and people FilmmakingandBroadcasting 2 - 9

Subculture People who share a unique way of life within a larger culture (language, race, lifestyle, attitudes, etc.) EXAMPLES Arabs Globally Goth, Punk, Emo China’s Dialects Groups in U.S

Discussion Question Why should business people try to avoid ethnocentricity and develop cultural literacy?

Answer to Discussion Question Ethnocentricity distorts one’s views of other cultures and causes them to overlook important human and environmental differences among cultures. Cultural literacy improves the ability of managers to manage employees, develop and market products, and conduct negotiations in local markets

Components of Culture Physical environments Education Personal communication Religion Social structure Manners & customs Values & attitudes Aesthetics Culture

Manners and Customs Manners Appropriate behavior, speech, and dressing in general Customs Traditional ways or behavior in specific circumstances

Customs Gift Giving Folk Assalam u alikum

Discussion Question Customs differ from _______ in that they define appropriate ways or behaviors in specific situations. a. Values b. Attitudes c. Manners

Answer to Discussion Question Customs differ from _______ in that they define appropriate ways or behaviors in specific situations. a. Values b. Attitudes c. Manners

Social Structure Social group Two or more people who identify and interact with each other Social stratification Process of ranking people into social layers Social mobility Ease of moving up or down a culture's "social ladder"

World Religions Christianity Islam Hinduism Buddhism Confucianism Judaism Shinto Origin of Human Values Origin of Human Values

Economic Systems  Central Planned Economy  Mixed Economy  Market Economy

What is central Planned Economy? Centrally planned economies assume that the market does not work in the best interest of the people, and that in order for social and national objectives to be met a central authority needs to make decisions.

What is Mixed Economy?  The economic system in which both public and private sectors co-exist is known as Mixed Economy.  Some factors of production are privately owned and some are owned by Government. There exists freedom of choice of occupation and consumption. Both private and public sectors play key roles in the development of the country.

Market Economy A market economy (also called free enterprise economy) is a type of economic system where supply and demand regulate the economy, rather than government intervention. Most economic decisions are made by buyers and sellers, not the government, so there is limited Government intervention.

Political Systems  Democracies  Theocracy  Socialism  communism

Democracies  Democracy is a form of government in which all eligible citizens participate equally—either directly or through elected representatives—in the proposal, development, and creation of laws.  In international business, we study it so that to know the political system of the country for doing trade.

What is Theocracy  A system of Government, where commandments of creator are accepted.  An Islamic state is a state that has adopted Islam, specifically Sharia, as its foundations for political institutions, or laws, exclusively, and has implemented the Islamic ruling system khilafah (Arabic: خلافة ), and is therefore a theocracy.

 Under socialism economic system, all the economic activities of the country are controlled and regulated by the Government in the interest of the public.  An economic theory or system in which the means of production, distribution, and exchange are owned by the community collectively, usually through the state. It is characterized by production for use rather than profit. What is Socialism

What is Communism A system of social organization in which all property is owned by the community and each person contributes and receives according to their ability and needs. It is also called Marxism.

29 The best system is Islamic System

Political Risk Political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or “any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives.

Globalization is the increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology, and capital. 31

Chapter Globalization Involves Us All We experience international transactions daily Imports and exports reach even remote areas Technology and e-business promote trade Consumers and companies pull markets closer

Chapter International Business

Chapter Globalization Trend toward greater economic, cultural, political and technological interdependence among national institutions and economies Globalization of markets Convergence in buyer preferences in markets around the world Globalization of production Dispersal of production activities worldwide to minimize costs or maximize quality

Chapter Benefits of Globalization Globalization of markets Globalization of production Reduces marketing costs New market opportunities Levels income stream Reduces marketing costs New market opportunities Levels income stream Access lower-cost labor Access technical expertise Access production inputs Access lower-cost labor Access technical expertise Access production inputs

Chapter Challenges to Business Physical security Digital security Reputational risk Examine company vulnerability and create a disaster recovery plan Guard proprietary information and confidential communications Require ethical and lawful behavior from all employees and business partners

Chapter Globalization Drivers I Regional trade agreements GATT (General Agreement on Tarrifs and Trade) WTO (World Trade Organization) Remove barriers to trade and investment

Chapter Globalization Drivers II Technological Innovation and video conferencing Internet, intranets, and extranets Transportation advancements Better coordination and control Improved communications and management More efficient, dependable shipping

Chapter Globalization Then and Now Highly mobile labor market Fear of jobs moving abroad Backlash among the disaffected Free-flowing capital and trade

Chapter Impact of Globalization on Jobs and Wages  Eliminates jobs in developed nations  Lowers wages in developed nations  Exploits workers in developing nations  Increases wealth and efficiency everywhere  Generates labor market flexibility in developed countries  Advances economies of developing nations Supporters Opponents

Chapter Impact of Globalization on Labor and Environmental Regulations – Globalization lowers labor standards – Weakens protection of the environment – Exploits workers in poor nations + Investment raises labor standards + Open economies most environment friendly + Companies concerned about the environmental Laws Opponents Supporters