Drivers of International

Business
 Harnessing the huge potential of
developing markets
Cost advantage of emerging economies
Changing demographics
Rise of regional trade blocks
Declining trade and investment barriers
Rapid technological advancement
Cross Cultural Differences
As markets turn borderless and become integrated
The companies have to compete not only with
domestic counterparts but also with other
international players

Marketers need to:

Recognize the differences in customs & Values
Design the whole marketing mix accordingly in
order to be acceptable and successful in the
global scenario
Cross-cultural factors

Cross-cultural factors that affect marketing

strategies abroad

VALUES
PRODUCT PREFERENCES
LANGUAGE
SYMBOLS
Languages
Provide the means of communicating the customs and
beliefs of culture

Awareness of meanings and dialects is very important

while dealing in foreign markets
Coca-Cola in Chinake kou ke la- Bite the wax tadpole
ko kou ko le- The mouth
rejoice

PepsiCo in Asian Countries, NOVA in Spain (GM)

Colour Associations

PURPLE CHINA- QUALITY,

LATIN AMERICA-DEATH
BLUE HOLLAND- FEMINITY
USA, SWEDEN- MASCULINITY
RED GERMANY- UNLUCKY
DENMARK, CHINA- POSITIVE
GREEN MALAYSIA- SICKNESS
WHITE INDIA- MOURNING
USA- PURITY
Symbols
Two Elephants- Africa
Moon in China
Number 4 in Japan
Triangle- Negative in Hong Kong, Korea &
Taiwan, Positive- Columbia
Owl- Wisdom in USA, bad luck in India
 Economic Environment
Components of Economic Environment

Income classification
Of countries
Economic system
Economic Classification
Institutions
Economic
Environment
Regionwise
Classification
Economic trade Of countries
Policies

Economies in
Transition
Income wise classification of countries

World bank classification based on 211 countries with a

population of atleast 30,000 are ranked by their Gross
National Income:
LIC (least income): having per capita GNI in 2000 of $735 &
less
LMC (lower middle income): have GNI between $736 &
$2995
UMC (upper middle income): have GNI between $2996 &
$9265
HIC (high income countries): have GNI of $9266 and above
LIC, IMC & UMC are considered as developing countries and
rest as developed countries
Developing countries
Developing countries share a common and well defined goals
Reduction in poverty, inequality & unemployment
Provision of minimum level of education
Health, housing and food for every citizen
Broadening of economic and social opportunities
Forging of cohesive nation state
Common problems shared by most developing countries.
Developing countries include countries in Africa, Middle
East, former Communist nations in Europe and Asia.
Developed countries
Highly industrialized, highly efficient and
people enjoy high quality life
Developed countries include Australia, Canada,
Japan, New Zealand, U.S, all western Europe
nations & Greece.
Economic system classification
Market economy also called capitalism

All productive functions are privately owned

Production is determined by supply and demand forces

Economic system classification
Requisites for market economy:
Trust (in banks, insurance companies, suppliers etc.)
Law and order (enforcement of contracts)
Security of persons and property
Balancing competition with cooperation
Community altruism
Social mobility, legitimating of ambition, tolerance for
competitiveness
Materialistic value as a stimulus to greater competition
Deferring gratification to generate private saving
Rationally unconstrained by tradition
Efficient form of competition, as opposed to monopolistic control
Freedom of information
Flow of information without restriction or favouritism
Command economy
Also called socialism, in command economy planning is
must.
Decision relating to all economic activities are
determined by economy, a central government plan.
The tool of production are organized, managed and
owned by government, with the benefit accruing to
public
Objective is for government to own and run business for
the good of society
Mixed economy
Falls midway between a market economy and command
economy
Economic setup is split into three
1. Sectors in which both production and distribution
are entirely managed and controlled by the state to
the complete exclusion of private enterprise
2. Sectors in which the state and private enterprise
jointly participate in production as well as
distribution
3. Sectors in which the private enterprise has complete
access subject only to general control and regulation
of the state
 Continuum of economic system

PURE MARKET ECONOMY

CUBA
U.S CANADA U.K FRANCE BRAZIL INDIA CHINA NORTH
KOREA

PURE CENTRALLY
PLANNED ECONOMY
Region wise classification of countries
East Asia and Pacific
Europe (east and central) and Central Asia
Latin America and Caribbean
Sub-Saharan Africa
Middle East and North Africa
South Asia
High income countries
Economies in transition
Command economies changing into market friendly
economies.
Transition process involves five reform measures
1) Macro-economic stabilization to reduce budget deficit
and expand credit availability
2) Liberalisation of economic activity
3) Legalization of private enterprises and privatisation of
state owned enterprises
4) Removal of trade and investment barriers in goods and
services, removal of controls on convertibility of
national currency
5) Development of social welfare system designed to ease
the transition process
6) Examples are India, China, Vietnam, Russia, Poland,
Africa, Latin America.
Trade policies
Outward and inward looking policies
An inward looking approach says that a country
should not trade with other nations, while
outwards advocates for the easy movement of
goods and services among the nations.
INTERNATIONAL INSTITUTIONS, TRAETIES AND
CONVENTIONS

INSTITUTIONS

UNITED NATIONS

WORLD BANK

INTERNATIONAL MONETARY FUND

INTERNATIONAL LABOUR ORGANIZATION

Treaties and conventions
The treaty of Rome: gave the birth to European
community EU
Maastricht treaty: the treaty called for common
currency and political union of EU members
The Vienna conventions on the law of treaties: covers
issues such as interpretation, amendment, termination
and the rights and duties of countries party to a treaty.
Paris convention: the first international property treaty
was the international convention for the protection of
industrial property. It guarantees that foreign
trademark and patent application from signatory
countries receive the same treatment and priority as
domestic applicants.
The patent cooperation treaty: supplemented the Paris
convention by establishing the centralised patent
application process.
Cultural Environment
Understanding CULTURE
The accumulation of shared meanings,
rituals, norms, and traditions among the
members of an organization or society.
A Societys Personality

A set of values and predispositions that are

common to a group of people and that affect
individuals perceptions and responses to
their environment
Characteristics of culture
Learned
Culture is not genetically inherited or biologically
based
Acquired by learning and experience

Shared
People as a member of a
group/organization/society share a culture

Trans-generational
Passed from one generation to the next
Characteristics of culture
Symbolic
Based on human capacity to symbolize or use one
thing to represent another

Patterned
Integrated and interconnected structure
Change in one part will lead to alterations in
other part

Adaptive
Based on human capacity to change and adapt
Characteristics of culture
A learned behavior.
Enculturation is learning ones own culture
Acculturation is learning a new culture
Adaptive, i.e. it changes as a society faces
new problems and opportunities...
Satisfies needs by providing norms (rules of
behavior)
Provides values which delineate what is
right, good, and important to a society
Culture includes
Traditions & customs
Supernatural beliefs & religion
Language (high & low context languages)
Values
Norms
Aesthetics (Art, literature and music)
Attitude
Non Verbal Communications (Symbols ,
colors)
The Way We Dress, Think, Eat, and Spend
Our Leisure Time
 Culture as an iceberg

TANGIBLE
ARTIFACTS
OVERT BEHAVIOR

VALUES
COVERT BEHAVIOR
INTANGIBLE
ASSUMPTIONS
Culture as an iceberg
Artifacts
The tangible aspects of the culture
Language
The Way We Dress, Think, Eat, and Spend Our
Leisure Time

Values and Assumptions

Enduring Beliefs that guide behavior across
situations and over time
They are so ingrained that most of us are not
really consciously aware of them
Covert and invisible
Language
High context languages
Indirect and implicit language
Communication have multiple meanings that can be
interpreted only by reading/knowing the situation
Arabic, Hebrew and other Asian languages

Low context languages

Stated directly and explicitly
No need to interpret the situation
German, English and Scandinavian languages
Language & intercultural communication

Provides a clear understanding of a given situation

Establishes one of the most effective and flattering
bridges to the local people
Language, properly learned and practiced provides
one of the most practical means of understanding
another culture
Language enables one to understand the nuances,
hidden & implied meanings of a given culture
Education & Culture
Countries rich in educational facilities attract high-
wage (brain power) industries.
Easier to hire & train local personnel
Increases market potential of the country
Level of education attainment determines the
nature of advertising, packaging, quality of
marketing research & distribution channels
required.
Attitude & Culture
Includes opinion about individual freedom, religion,
democracy, truth, time, justice, gender roles, work
ethics etc
Office Customs and Practices
Include typical hour of work, lunch and
break time, degree of formality, hiring
and firing
US Employees are expected to find work to
do even in slow hours and never be idle
Variations in office hours
US 9 am to 5 pm
Iran 9.30 am to 1 pm and 2 to 5 pm
Brazil & Colombia 8 am to 6 pm
Peru has one of the longest workweeks in the
world: 48 hours a week
Office Customs and Practices
Hiring & firing practices vary according to cultures
US Hiring and retention are based on job
effectiveness and job performance. Although
workers cannot legally be fired without cause, it
is understood that no job is permanent
Europe Everyone in the firm has a contract
that virtually guarantees permanent employment
Japan, France & England Considers job to be
permanent unless the person breaks law or is
guilty of moral turpitude
Office Customs and Practices
Another important aspect of office relationships is the
appropriateness of showing emotions at work
Cultures that are primarily affective feel it acceptable
to show emotions; those who are emotionally neutral
control or mask their feelings
Trompenaars & Hampden-Turner (1998) exercise
The highest percentage of persons who would not
show their emotions openly were from Ethiopia,
Japan and Poland
The lowest percentage of persons who would not
express emotions were from Kuwait, Egypt, Spain &
Cuba
Attitude towards time

Monochronic People Polychronic People

Do one thing at a time Do many things at a time

Concentrate on a task Are highly distractable

Are committed to task Are committed to people

Take time commitments seriously, Consider time commitments

value promptness casually, promptness based on
relationships

Accustomed to sort-term Tend to build lifetime relationship

relationships
Rarely borrow or lend Often borrow & lend
CHRONEMICS
Monochronic Culture: US, England, Switzerland &
Germany
Polychronic Culure: Latin America & Arabs
In US:
Being on time for work, appointments, meetings & social
engagements is very important
Punctuality Being Respectful
Tardiness Rudeness; lack of consideration far others
Time conscious cultures:
Germany, Switzerland, Singapore, Hong Kong , Australia & New
Zealand etc.
PROXEMICS
Communicating through the use of space
Halls & Halls (1990) identified 4 zones from
which US people interact
Public distance: over 12 feet most formal zone
Social Zone: 4-16 feet business situation
Personal Zone: 18 inches 4 feet giving
instructions, working closely
Intimate Zone: Less than 18 inches very close
friend; shaking hands
Cultural Diversity- Advantages
Helps in the generation of more and better ideas
Culturally diverse group can prevent groupthink, which is
social conformity and pressures on individual members of
a group to confirm and reach consensus
When this occurs, group participants see merit in only their ideas
and consider everyones counter-point as an uninformed or
sabotage
Multicultural diverse groups are able to avoid this problem, because
the members do not think similarly or feel the pressure to conform
As a result they question each other, offer opinions and suggestions
Decision making may be slow, unlike in a homogeneous
group, but the decisions reached tend to be very effective
Cultural Diversity - Disadvantages
Diversity may cause a lack of cohesion firms inability
to create a work environment that is conducive to
efficiency and effectiveness
Past baggage of preconceived notions and stereotypes
Another potential problem with diverse groups is
inaccurate communication
Misunderstandings caused by words used by one but not clear
to others
Misinterpretation of situations Mistaking nodding of head as
approval
 Culture Strategy Compatibility
Name of Strategy Culture Fit
Company
P&G During 1980s, modified its bulky diapers in Japan to trim fit which
helped regain 30% market share. Trim-fit because best sellers in the US
McDonalds Created for Indian vegetarian palate Maharaja burger and for non-
vegetarians, the company introduced lamb mince instead of beef mince
Asian Paints Became APCO in Australia, as Australian are averse to the term Asia

Coca-Cola Labels on bottles supplied to gulf to contain no-alcohol

Nokia Introduced Hindi SMS for Indian cellphone users

McDonalds Halal printed on label for Middle Eastern countries

Dominos Pizza Pizzas in Bangalore to contain Indian curry as paste instead of the usual
one. It also offers Tandoori pizzas
Levels of culture
National culture: dominant culture within the
political boundaries of the country

Business culture: represents norms, values &

beliefs that pertain to all aspects of doing
business in a particular environment

Occupational & organizational culture:

philosophies, ideologies, values, assumptions
etc. That knit an organization together and that
are shared by its employees
Cultural predispositions

Ethnocentric orientation
Belief that ones own culture is superior to all others
Evaluating foreigners behavior by the standards of
ones own culture
Home country oriented Executives hold the
assumption that practices those work in the
headquarters/home country must necessarily work
else where
Cultural predispositions
Polycentric orientation
Tolerance to beliefs and values of other societies

Host country oriented Executives believe that

the part of the organization located in a given
host country should be staffed by local individuals
to the fullest extent to suit local needs and
customization
Cultural predispositions
Regiocentric orientation
Region oriented Executives believe that
geographic regions have commonalities that
make a regional focus advantageous
Company problems related to a specific
region are generally best solved by individuals
from that region
Cultural predispositions
Geocentric orientation
World oriented Executives applies the belief that
a global view is needed in both the headquarters of
parent company and its various subsidiaries
Best individuals, either from host or home country
should be utilized in overcoming any problems faced
by company in any part of the world
Political environment
Influence of the system of government and judiciary in a
nation on international business

Basic political systems:

Democracy: Political arrangement in which supreme
power is vested in the people.
Totalitarianism: individual freedom is completely
subordinated to the power of authority of state &
concentrated in the hand of few or small group
Types of totalitarianism
 Theocratic - religious leaders are political leaders (Iran*)
Secular - political leaders are guided by military and
bureaucratic power
Tribal - political party that represents the interest of
particular tribe monopolises power (South Nigeria versus
North Nigeria, sub-saharan states)
Right wing totalitarianism - private ownership of property
is endorsed by government, market forces are also
allowed to play freely but political freedoms are rarely
granted (North Korea, China, Kingdom of Saudi Arabia)
Political risks
Macro-political risks: affects all international business
in the same way. Civil wars, inflation, recession, labor
legislation, currency devaluation

Micro-political risks: affects specific foreign business.

Like increased taxation, official dishonesty.

Political risks assessments. Two ways

1. The use of experts or consultants familiar with host country

2. Development of internal staff and in-house capabilities

Criteria for evaluating political risks

Political economic environment

1. Stability of political system
2. Imminent internal conflicts
3. External threats to stability
4. Degree of control of the economic system
5. Reliability of the country as trading partner
6. Constitutional guarantees
7. Effectiveness of public administration
8. Labour relations and socil peace
 Contd.

Domestic-economic condition
Size of the population
Per capita income
Economic growth over the last 5 years
Potential growth over the next 3 years
Inflation over the past 2 years
Accessibility of the domestic capital market to outsiders
Availability of high quality local labour foce
Possibility of employing foreign nationals
Availability of energy resources
Legal requirements regarding environment pollution
Infrastructure, including transportation & communication systems
 Contd.

External economic relations

Import restrictions
Export restrictions
Restrictions on foreign investments
Freedom to setup or engage in partnerships
Legal protection for brands and products
Restriction on monetary transfer
Revaluation of the currency during the last 5 years
Bop situations
Drain on foreign funds through oil & energy imports
International financial standing
Restriction on the exchange of local money into foreign currencies
 Contd
Managing political risks
Avoiding investment
Adaptation
Local equity & debt
Development assistance
Insurance
Threat
Lobbying
Terrorism consultants
 Contd
Bargaining and integrative approaches
Relative bargaining power
Integrative as well as protective and defensive techniques
Integrative are designed to help the subsidiary to become
one with the host countrys need & culture
Protective & defensive are designed to discourage host
government to interfere. Example
1.Doing as little local manufacturing as possible
2.Limiting the local personnel
3.Raising capital from local as well as outside sources
4.Dispersing production of product among number of
countries
Technological Environment
Systematic application of scientific or other organized
knowledge to practical tacks

The Technology Cycle

Awareness Phase
Acquisition Phase
Adaptation Phase
Advancement Phase
Abandonment Phase
Technological Cycle

Awareness

Abandonment Acquisition

EXT & INT

ENVIRONMENT

Advancement Adaptation

Promotion
Technological Cycle
Awareness Phase
Formal Mechanism to become aware of emerging
technologies (think tanks)
Information synthesized for internal records
Used by corporate Strategic Planners & Technology
Policy makers
Acquisition Phase
Technical & Economic Feasibility
Adaptation Phase
Minor modification of acquired technology for
specific use
Technological Cycle
Advancement Phase
Innovation involving of major modification of
acquired technology
Abandonment Phase
Oblsolescencing
Lost Revenues
Impact of Technology
Social implication
High Expectations of Consumers
System Complexity
Social Changes
Economic Implications
Increased Productivity
Increased R & D
Boundaries redefined
Intellectual nature of jobs
Quick Rise & Fall of organizations & Products
Impact of Technology
Plant Level Changes
Organizational Structure
Resistance To Change
Fear of Risk
Technology transfers
Markets
Technological environment
Rapid Advancements in technology- Overview
Technology & international management
Rapid advances in biotechnology revolutionize the
field of agriculture, medicine, industry.
Satellite role in learning
Automatic translation telephones
Artificial intelligence
Supercomputers capable of 1 trillion
calculations/second respond easily to spoken
commands
 Contd

E-business
The area of e-business that affect global customers:
E-retailing
Financial services
E-cash will create a problem

Telecommunications
Future technology has a potential displace employees in all
industries
Makes work more portable
Advantages & disadvantages

Advantages

Cost of doing business worldwide will decline

Productivity goes-up & cost goes-down

Disadvantages

Loss of job / reduction in salary

Legal and regulatory environment
Four foundations on which laws are based
1. Islamic law Derived from Quran & teachings of
Prophet Mohammad
Middle Eastern & Central Asian countries

2. Socialist law Laws come from Marxist Socialist

systems
Still influences regulations in China, Vietnam, North Korea,
Cuba and countries from former USSR
 Contd
Legal and regulatory environment

3. Common law This comes from English law

Foundation of the legal system is US, Canada, Australia, etc

4. Civil or code law derived from Roman law.

Found in non-islamic and non-communist countries like
France and some countries in Latin America
Basic principles of international law
Sovereignty and sovereign immunity

The principle of sovereignty holds that governments

have the right to rule themselves as they see fit

One countrys court system can not be used to rectify

or impose injustice on other country unless that
country agrees
 Contd
Basic principles of international law

International jurisdiction International law provides for

three types of jurisdictional principle
1. Nationality principle: jurisdiction over citizens no
matter where they are located
2. Territory principle: right of jurisdiction within its legal
territory
3. Protective principle: jursidiction over behaviour that
adversely affects national security
 Contd
Basic principles of international law
Doctrine of comity
Mutual respect for laws, institutions & government of
other countries in the matter of jurisdiction over their
own citizens
Part of international custom and tradition (not a part of
international law)

Act of state doctrine

All acts of other government are considered to be valid
under US court, even if such acts are inappropriate in
U.S.
 Contd
Basic principles of international law
Treatment and rights of aliens
Right to refuse admission of foreign citizens
Right to impose special restrictions on their conduct,
travel, where they stay & what business they conduct

Forum for hearing and settling disputes

Principle of US justice applicable to international law
US court can dismiss the case brought from them by
foreigners
They are bound to examine issues such as where the
plaintiffs are located, where the evidence must be
gathered etc.