Business Environment Lecture Notes PDF

Business Environment  The Economic Environment  If you plan to do business in a foreign country, you need to know its level of economic development.  You also should be aware of factors influencing the value of its currency and the impact that changes in that value will...

Business Environment  The Economic Environment  If you plan to do business in a foreign country, you need to know its level of economic development.  You also should be aware of factors influencing the value of its currency and the impact that changes in that value will have on your profits.  Economic Development If you don’t understand a nation’s level of economic development, you’ll have trouble answering some basic questions, such as, Will consumers in this country be able to afford the product I want to sell? How many units can I expect to sell? Will it be possible to make a reasonable profit?  Uncontrollable factors  Economic forces  Political-Legal forces  Socio-cultural forces  Technological forces  Natural forces  Economic forces  Economic development: crisis, development stage  Infrastructure: railways, airports, roads, industrial plants, energetic system, port, etc.  Resources: raw materials, natural resources  Unemployment rate: short term, structural.  Investments: direct investments, foreign investments  Foreign trade: import-export figures  Inflation: buying power, price increase  Economic growth - is an increase in the production of economic goods and services, compared from one period of time to another  Interest rates: bank policies, credits  Incomes: brut/net salaries, incomes structure.  Free trade - unrestricted importing and exporting of goods and services between countries  Social forces  Demographics: population, age, ethnic groups, occupation, nationalities.  Changes in demographics; - Increase of population in low developed countries; - Decrease of population in well developed countries; - Increase of elder people, decrease of young people;  Changes in family structure  People mobility  Better education: increased number of people with higher education.  Education structure: school education, higher education.  Generation differences  Cultural forces  Language: dialects, different meaning, expensive translations, misunderstandings  Religion: differences in attitudes toward work, food, social interaction (gender roles), consumption, family, education.  Tradition: way and time of celebration.  Values, attitudes, cultural norms: gift giving, consumption, behavior, product preferences and perceptions. What is culture? Culture is shared knowledge, beliefs, values, common modes of behavior, and ways of thinking among members of a society.  Understanding different cultures  Time Orientation: a cultural or national preference toward past, present, or future thinking. For example, America is often considered to be future-orientated, as compared to the more present-orientated France and the past-orientated Britain. Often (but not always), a past orientation arises in cultures with a long history, like India or China, and a future orientation in younger countries, like the USA.  Business Hours  Gift Giving  Socializing  Gender Roles  Status Concern and Materialism  Contact: phone, e-mail,  Access: car, bicycle, public transport  How to integrate cultural elements? 1.Research symbolic elements and cultural meanings in consumer lives. 2.Identify cultural meanings of a product. 3.Design product that identifies and differentiates a product from other products 4.Design marketing - program using symbolic cultural elements  Global consumer culture  Global consumer culture is influenced by globalization, consumerism.  Diffusion of products world wide:  –Entertainment: MTV, movies,  –Food & beverages: hamburgers, fast food  –Shoes, jeans, accessories  Technological-scientific forces  Development of sophisticated software.  Development of IT technologies  Knowledge  Technological advancements  Innovations  Financial possibilities to implement innovative ideas and projects.  Legal-Political Forces  Laws and regulations related to: company’s activities, consumer rights, labor laws, taxes, trade agreements.  Political Risk related to: trade policies, economic policies, foreign investments, labor policies.  Political Risk  Poor economic performance  Political Instability  Radically changing government structures  Protection of intellectual property  Protected intellectual property is one of the most significant competitive advantages for the international and national companies.  Intellectual property protection through: – Patent – Copyright – Trademark – Trade secret  Protection of intellectual property  Patent protects the rights of inventor or of the company to use and sell invention for a specified period of time.  Copyright defines rights of owner of original work of art (film, music, literature, design) to sell, reproduce, film the work.  Trademark – brand name, mark, symbol, motto, or slogan that identifies a brand and distinguishes it from competitors’ brands.  Trade secret –know-how, formulas, etc. Protection of intellectual property  Natural Forces  Natural resources  Energy resources  Development of alternative energy resources  Environmental pollution, safety, regulations  Climate  Business controllable factors  External forces: –Competition –Suppliers –Customers/buyers –Partners  Internal forces: –Culture –Business model –Marketing Mix  Buyers  Private consumers (end customers)  Producers  Resellers: retailers, wholesalers  Public organizations  Foreign companies  Business competition analysis  Analysis of general market situation.  Identification of company’s position in the market and it’s possibilities for development.  Identification of the main competitors.  Identification of weaknesses and strengths.  Characteristics of Business Internal Environment  Mission, vision, goals, values.  Culture  Human capital: employees, competencies, professional skills.  Financial resources.  Tangible and intangible assets.  Relationships with partners.  Relationships with customers. Business in a Global Environment Do you wear Nike shoes or Timberland boots? Buy groceries at Carrefour, Giant Stores, or Stop & Shop? Do you listen international music? If you answered yes to any of these questions, you’re a global business customer. Why Do Nations Trade?  Why does the United States import automobiles, steel, digital phones, and apparel from other countries?  Why don’t we just make them ourselves?  Why do other countries buy wheat, chemicals, machinery, and consulting services from us? Because no national economy produces all the goods and services that its people need. Countries are importers when they buy goods and services from other countries; when they sell products to other nations, they’re exporters. Absolute Advantage A nation has an absolute advantage if it’s the only source of a particular product or it can make more of a product using the same amount of or fewer resources than other countries.  Becauseof climate and soil conditions, for example, Brazil has an absolute advantage in coffee beans and France has an absolute advantage in wine production. Comparative Advantage  How can we predict, for any given country, which products will be made and sold at home, which will be imported, and which will be exported?  This question can be answered by looking at the concept of comparative advantage, which exists when a country can produce a product at a lower opportunity cost compared to another nation.  Each country will specialize in making the good for which it has a comparative advantage.  America’s colleges and universities, therefore, are a source of comparative advantage, and students from all over the world come to the United States for the world’s best higher- education system.  France and Italy are centers for fashion and luxury goods and are leading exporters of wine, perfume, and designer clothing.  Japan’s engineering expertise has given it an edge in such fields as automobiles and consumer electronics.  With large numbers of highly skilled graduates in technology, India has become the world’s leader in low- cost, computer-software engineering. How Do We Measure Trade between Nations?  We determine a country’s balance of trade subtracting the value of its imports from the value of its exports.  If a country sells more products than it buys, it has a favorable balance, called a trade surplus.  If it buys more than it sells, it has an unfavorable balance, or a trade deficit. Balance of Payments  The second key measure of the effectiveness of international trade is balance of payments: the difference, over a period of time, between the total flow of money coming into a country and the total flow of money going out.  As in its balance of trade, the biggest factor in a country’s balance of payments is the money that comes in and goes out as a result of imports and exports. Preparing for a Career in International Business  Plan Your Undergraduate Education - Develop real expertise in one of the basic areas of business - Develop your knowledge of international politics, economics, and culture. - Develop foreign-language skills.  Get Some Direct Experience - Take advantage of study-abroad opportunities, whether offered on your campus or by another college.  Interact with People from Other Cultures