THE ENVIRONMENT OF IB

1
THE ENVIRONMENT OF IB
2
Domestic and International Business

• Similarities- Objectives and Means
• Objectives -Profit Motive
• Means - The functional areas of Business
  (Production, Marketing, HRM processes)
• Differences- External Environment, Scope of
  Operations, and Measurement of performance

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Focus of Module

• EXPLORE THE EXTERNAL ENVIRONMENT OF IB AND
  POSSIBLE IMPACT ON MANAGING A MNC.
• Legal, Political, Economic, and Socio-cultural
  Environment

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Legal Systems and Managerial Implications.

• Common Law System, e.g... U.K..., U.S.A...
• Civil Law System, (Codified Law), e.g... France,
  Germany.
• Theocratic Law, e.g... many of the Islamic
  Nations.
• Impact on contracts, Health and Safety Standards,
  HR practices, Taxes, Pricing, etc......
• Issue of Extraterritoriality

5
Political Systems

• Means of Integration in pluralistic society
• The democratic/totalitarian continuum
• Impact on management issues such as FDI,
  nationalization etc......
• Present day fragmentation of political entities
  and global business
• Impact of geo-politics on MNCs

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Economic Systems

• System of allocating and controlling resources
• Market System
• Command Systems (Not very common these days)
• Relationship between Political and Economic
  Systems
• The reality of a mixed economic system
• Impact of host country Macroeconomic and
  Institutional changes.

7
Globalization and Localization

• Impact of environmental forces
• Forces for Globalization and Localization
• Regionalization and MNCs

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Globalization Forces

• Need for Economies of Scale
• Cost of Factors of Production
• Snowball effect of globalization, inter-industry
  impact (Auto and Tire Industry)
• Changes in geopolitical systems, movement towards
  democracy and market systems.

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Globalization Forces cont.

• Competitive positioning by MNCs
• High Cost of Technology
• Shorter PLC
• Cultural Assimilation and Transfer and similar
  demand characteristics

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Localization Forces

• Differences in level of industrialization,
  political systems, history and national culture
  (Power distance, Uncertainty Avoidance,
  Individualism, and Masculinity)
• Government and Political Objectives of Host
  Countries
• Fear that MNCs are not only vehicles of
  development but also of elitist distinctions, and
  corrupting society (Chile)

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Localization forces cont.

• Differences in market structures
• High Cost of Globalization
• New technology that allows for flexible design

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Impact of forces of localization and globalization

• Different types of industry structures
• Global (Auto, Computers, Finance)
• Multinational (Insurance, Healthcare)
• The need for Global efficiency, national
  responsiveness, and worldwide learning

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Impact of MNCs on Host Country

• B (m-m1) (x-x1) (c-c1)
• B Balance of payment effects
• m import displacement
• m1 import stimulus
• x export stimulus
• x1 export reduction
• c capital inflow other than import and
  export payment
• c1 capital outflow other than import and
  export payment

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Impact of MNCs on Host Country

• MNCs objectives are Primarily financial
• Profit
• ROI
• Market share
• Host Countrys government want
• Social cost/benefit
• Political return
• Industrial policy fit