MGB Session 3-4
MGB Session 3-4
MGB Session 3-4
Kshitij Awasthi
Environmental Analysis
• The prospects of a business depend not only on its resources
but also on the environment
• Internal factors controllable
• Environment necessitates adaptability for survival and
success
• Environmental analysis is an essential prerequisite for strategic
management decision-making
• Definition “The process by which strategists monitor the
economic, governmental/legal, market/competitive, supplier/
technological, geographic, and social settings to determine
opportunities and threats to their firms”
• Gaining prominence due to complexity of environment
• More crucial for international business strategy
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Analyzing International Business environment
Environmental Assessment
Economic
Political-Legal
Supplies Socio-Cultural
Customers Demographic
Marketing intermediaries Natural
Public Physical and technological
International
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Environmental Analysis: Micro vs. Macro
• “The micro environment consists of the actors in the
company’s immediate environment”
• Effect the performance of the company
• Include the suppliers, marketing intermediaries,
competitors, customers, and publics
• “The macro environment consists of the larger societal forces
that affect all the actors in the company’s micro environment
namely, the demographic, economic, natural, technological,
political and cultural forces”.
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Micro Environment: Competitors & Marketing
Intermediaries
• Competitors
• Competitive dynamics; number of players and rivalry
• Competition with substitutes
• Price sensitivity
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Micro Environment: Public
• “Public is any group that has an actual or potential interest in or impact
on an organization’s ability to achieve its interests”
• Media
• citizens forum
• Local community
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Macro Environment
Assessing Environment: Economic Conditions
• “Economic conditions, economic policies and the economic system
are major constituents of the economic environment
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Contd..
• The economic environment can be very different from one nation
to another.
• Countries are often divided into three main categories:
• The more developed or industrialized,
• The less developed or third world,
• The newly industrializing or emerging economies
• This distinction is largely based on level of economic development
like GDP, education, infrastructure, technology, health care
• Level of economic activity combined with these factors as well as
the degree of government control of the economy, affect virtually
all facets of doing business
• A firm needs to understand this environment if it is to operate
successfully internationally
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Elements of the Economic
Environment
• Gross domestic product (GDP): the total value of all
final goods and services produced in a country in a
given year equal to total consumer, investment, and
government spending, plus the value of exports,
minus the value of imports.
Other Features of an Economy
• Inflation
• Unemployment
• Debt
• Income distribution
• Poverty
• Labor costs
• Balance of payments
Definition of Economic System
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Political and Legal Environment
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Definition of a Political System
Environmental Assessment
Economic
Political-Legal
Supplies Socio-Cultural
Customers Demographic
Marketing intermediaries Natural
Public Physical and technological
International
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Government Business Relation
• Government-business relationships also differ from country to
country.
• Business may be viewed positively as the engine of growth
• it may be viewed negatively as the exploiter of the workers, or
• Somewhere in between as providing both benefits and
drawbacks.
• Specific government-business relationships can also vary from
positive to negative depending on the type of business operations
involved and
• The relationship between the people of the host country and the
people of the home country
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Some types of Government control
• Licensing
• Statutory compliance
• Disclosure requirements
• Advertising
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Government as resource provider
Governments not just controls but can also facilities the business
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Changes in Political and Legal environment
• Also, governments change in different ways--
• Regular Elections
• Occasional Elections
• Death
• Coups
• War
• New legislation may come due to political factors
• One of major concern of international firms is the degree of
political risk in a foreign location
• Political risk refers to the likelihood of government activity that has
unwanted consequences for the firm.
• can be dramatic as in forced divestment, more moderate, as in
unwelcome regulations or interference in operations
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Political and Legal Environment in India
• India is a mixed economy with elements of both capitalist and
socialist economies
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Socio-Cultural Environment
• Important yet sometimes overlooked aspect
• Many socio-cultural factors that affect business
• Buying and consumption habits of the people,
• Language,
• Beliefs and values,
• Customs and traditions,
• Tastes and preferences,
• Education
• Cost of ignoring could be very high
• To avoid that International Business strategy of the firm
should be the one that is appropriate in the socio-cultural
environment
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Hofstede (1980) Model of Cultural values
• This model proposes four dimensions of cultural values
1. Individualism: Degree to which a nation values and encourages
individual action and decision making
• For example, in a nation that is high on individualism one
expects individual goals, individual tasks, and individual reward
systems to be effective, whereas the reverse would be the case in
a nation that is low on individualism.
2. Uncertainty Avoidance : degree to which a nation is willing to
accept and deal with uncertainty
3. Power distance : degree to which a national accepts and sanctions
differences in power
4. Masculinity : degree to which a nation accepts traditional male
values or traditional female values
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Attention to Socio-Cultural Environment
• Same basic product, the mode of consumption, conditions of use,
purpose of use or the perceptions of the product attributes may
vary very much from one market to other
• Need to adapt the strategy to suit the environment
• Change in Marketing mix
• Promotion- advertising medium; message
• Price- preference in prices
• Product attributes- color, design,
• Place- preferred channels of distribution
• Social environment of the business ; the alertness or vigilance of
the consumers and of society at large
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Culture
• Change by Choice
• Reaction to social and economic situations
• Change by Imposition
• Imposed introduction into a culture of certain elements
from an alien culture
Language as Both a Diffuser and
Stabilizer of Culture
• Ascribed or Acquired
• Include those based on gender, family, age, caste, ethnic,
racial, or national origin
• Performance Orientation
• Open and Closed Societies
• Gender-Based Groups
• Age-Based Groups
• Family-Based Groups
Work Motivation
• Power Distance
• Individualism Versus Collectivism
Risk-Taking Behavior
• Uncertainty Avoidance
• Trust
• Future Orientation
• Fatalism
Information and Task Processing
• Perception of Cues
• Obtaining Information: Low Context versus
High Context Cultures
• Information Processing
• Monochronic Versus Polychronic Cultures
• Idealism Versus Pragmatism
Communication
Cultural Distance
When a company moves within a cluster of culturally
similar countries, it should expect to encounter fewer
cultural differences and to face fewer cultural
adjustments.
Cultural Friction
A business interaction may be viewed negatively
because of possible changes in power relationships and
the sovereignty that sets countries apart.
Company and Management Orientations
• Polycentrism
• belief that business units in different countries should act like local
companies
• Ethnocentrism
• conviction that one’s own culture is superior to that of other countries
• Geo-centrism
• requires companies to balance knowledge of their own organizational
cultures with both home and host country needs, capabilities, and
constraints
Example of Socio-Cultural variation 1
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Assessing Environment: Demographic Environment
• Demographic factors are important consideration as they affect the
demand pattern for goods or services
• Size of the population (India, China Vs Singapore)
• Population growth rate (negative in Japan and many European
countries like Hungary, Portugal)
• Age composition (Japan vs India)
• Life expectancy (African Countries)
• Gender ratio
• Family size
• Employment pattern
• An international business strategy necessitates to understand these
factors and respond accordingly
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Effect of Demographic Environment : Some scenarios
• A rapidly increasing population indicates a growing demand for
many products
• Consumer products; food products
• The governments of developing countries encourage labour
intensive methods of production due to labor surplus
• The decline in the birth rates, on the other hand, in countries like
the United States have affected the demand for baby products
• Johnson and Johnson repositioned their products like baby
shampoo and baby soap, promoting them also to the adult
segment, particularly to the females
• Highly heterogeneous labor in respect of language, caste
• and religion, ethnicity, etc., can make personnel management a more
complex task
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Assessing Natural Environment
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Effect of Natural Environment : Some scenarios
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Assessing Environment: Physical Environment
• Physical / natural Factors, may call for modifications in the
product,
• For example, Esso adapted its gasoline formulations to suit the
weather conditions prevailing in different markets.
• Business prospects depend also on the availability of certain
physical facilities. For example
• The sale of television sets, is limited by the extent of the
coverage of the telecasting.
• Demand for refrigerators and other electrical appliances is
affected by the extent of electrification and the reliability of
power supply.
• The demand for LPG gas stoves is affected by the rate of
growth of gas connections.
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Assessing Environment : Technological Environment
• Variation in technology development levels between two countries
might have huge implications
• Modification in product or services requires to survive/grow
• Many appliances and instruments in the U.S.A. are designed for
110 volts but this needs to be converted into 240 volts in
countries which have that power system.
• Technological developments may change the demand for some
existing products
• Voltage stabilizers help increase the sale of electrical appliances
in markets characterized by frequent voltage fluctuations in
power supply
• However, the introduction of TVs, Fridges etc, with in built
voltage stabilizer adversely affects the demand for voltage
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stabilizers
Technological Environment: Examples
• Internet banking
• E-commerce
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Assessing Environment : International Environment
• As the economies are integrating; they are affecting each other in
more direct ways
• Geo-political factors; Wars; Treaties
• Recession/ Boom in foreign markets especially in large
economies
• Adoption/relaxation of protectionist policies by foreign
nations
• Particularly important for industries directly depending on imports
or exports and import-competing
• The oil crisis led to a reorientation of the Government of India’s
energy policy.
• Such developments affect the demand, consumption and
investment pattern.
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THE CAGE DISTANCE FRAMEWORK
Cultural distance Administrative distance Geography distance Economic distance
Attributes creating distance
Different languages Absence of colonial ties Physical remoteness Differences in consumer incomes
Different ethnicities; lack Absence of shared monetary Lack of a common border Differences in costs and
of connective ethnic or or political association Lack of sea or river access quality of
social networks Political hostility Size of country • Natural resources
Different religions Government policies • Financial resources
Weak transportation • Human resources
Different social norms Institutional weakness or communication links • Infrastructure
Differences in climates • Intermediate inputs
• Information or knowledge
Industries or products affected by distance
Products have high Government involvement is high Products have a low value-of- Nature of demand varies with
linguistic content (TV) in industries that are weight or bulk ratio (cement) income level (cars)
Products affect cultural or • Producers of staple goods Products are fragile or Economies of standardization or
national identity of (electricity) perishable (glass, fruit) scale are important (mobile
consumers (foods) • Producers of other phones)
“entitlements” (drugs) Communications and
Product features vary in • Large employers (framing) connectivity are important Labor and other factor cost
terms of size (cars), • Large suppliers to government (financial services) differences are salient
standards (electrical (mass transportation) Local supervision and (garments)
appliances), or packaging • National champions (aerospace) operational requirements are Distribution or business systems
Products carry country- • Vital to national security high (many services) are different (insurance)
specific quality (telecom) Companies need to be
associations (wines) • Exploiters of natural resources responsive and agile (home
(oil, mining) appliances )
• Subject to high sunk costs
(infrastructure)
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Analyzing International Business environment
Environmental Assessment
Economic
Political-Legal
Supplies Socio-Cultural
Customers Demographic
Marketing intermediaries Natural
Public Physical and technological
International
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