Managing the Business environment

1. Managing the
Environment
“Environmental Forces &
Managing Globally”

2. Learning Objectives
• Describe how economic and cultural factors
influence organizations.
• Identify the five competitive forces that affect
organizations in an industry.
• Describe the political and legal strategies used
by managers to cope with changes in the
environment.
• Explain how technological forces influence
changes in industries.

3. Learning Objectives (Contd)
• State characteristics of the global economy.
• Explain the impact of political–legal forces on
international business.

4. The Environment
• General Environment - sometimes called the
macro-environment, includes the external
factors that usually affect all or most
organizations;
– Economic system: capitalism, socialism or
communism
– Economic conditions: expansionary & recessionary
cycles and general standard of living

5. The Environment
– Political system: democracy, dictatorship or
monarchy.
– Condition of ecosystem: extent of land, water & air
pollution
– Demographics: age, gender, race, ethnic origin,
education level of population
– Cultural background: values, beliefs, language, &
religious influences

6. Forces Impacting Organizations
(adapted from Figure 3.1)
EconomyEconomy
Country
Cultural
Values
Country
Cultural
Values
TechnologyTechnologyDemographicsDemographics
Politics
Organization
Macroenvironment
Competitors

7. The Economy
• Economics is the discipline that focuses on
understanding how people or nations produce,
distribute, and consume various goods and services;
– Important economic issues;
• Wages
• Inflation
• Taxes paid by employees & organizations
• Cost of material used in production
• Selling price of goods & services
• FDI
• Tax Regime (GST)
• GDP Growth
• Skill Availability & Gap – Employment Generation & Distribution

8. The Economy
– The government (part of political system) acts as
regulator/watch dog over business
• Legislature
• Executive
• Judiciary
– Government ownership of enterprises is the
exception rather than the norm

9. The Economy
• Value Matters: value has shifted from tangible
to intangible (industrial wealth to Knowledge
wealth) e.g.
– steel mills to know-how
– Manufacturers use more software/technology &
less unskilled labour
– more automated, networked, and integrated than
ever before
– Value creation thru knowledge

10. The Economy
• Borderless Competition: shortest distance between
customer & company – single mouse click
• Customer Convenience – ecommerce, e-banking, etc
• Human capital :Biggest demographic advantage to
India
• The Environment;
– Environmental stewardship is a policy that an organization
adopts to protect or enhance the natural resources in the
conduct of its activities
– Trade-offs involved in both economic & environmental
survival.
– Stringent environmental standards.

11. Demographics
• Demographics are the characteristics of a work
group, an organization, a specific market, or
various populations.
• Some current demographic changes include:
– Increasing Diversity- people with disabilities, gays,
lesbians, women, nationalities – equal rights
– Education and Skills – knowledge workers
– Managerial Challenges – increase in number of
contingent workers, employees who are
independent contractors (how to manage people)
– Age vs Ageing

12. Cultural Forces
• Not as visible as other environmental forces learning
continues all through life and learnt from birth.
• Culture refers to the unique pattern of shared
characteristics, such as values, that distinguish the
members of one group of people from those of
another.
– A value is a basic belief about a condition that has
considerable importance and meaning to individuals and
is relatively stable over time.
– A value system comprises multiple beliefs that are
compatible and supportive of one another.

13. Cultural Forces
• Values can effect how a manager ;
– Views other people and groups, thus influencing
interpersonal relationships
– Perceives situations and problems
– Goes about solving problems
– Determines what is and is not ethical behavior
– Leads and controls employees

14. Cultural Differences – Geert Hofstede
Model: 5 dimensions:
1.Power distance
2.Uncertainty avoidance
3.Individualism vs collectivsm
4.Masculinity vs feminity
5.Long-term vs short-term orientation
( will be explained separately)

15. Competitive Forces in the Task Environment
(adapted from Figure 3.3)
Threat of
substitute goods
or services
Supplier
bargaining
power
Rivalry among
existing firms in
industry
Customer
bargaining
power
Threat
of new
competitors

16. Competitive Forces in the Task Environment
• Competitors: are the single most day to day
force facing organizations.
• New Entrants: refer to relative ease with which
new firms can compete with existing firms.
– Factors working as “Barriers to Entry”;
Economies of scale
Product differentiation: uniqueness in quality, price,
design, brand image or customer service, etc
Capital requirement
Government Regulation : e.g. defence sector,
science & technology, etc

17. Competitive Forces in the Task Environment
• Substitute Goods & Services: Photography, fast food
industry, Desk-top, Lap-top, Tabs, Mobiles, emails
vs telephone calls, etc
• Customers: issues regarding price fixation, quality,
services,
– The customer purchases large volume relative to supplier’s
total sale
– The product or service represents significant expenditure
by the customer

18. Competitive Forces in the Task Environment
– Large customers pose a threat of backward
integration ( as cost cutting or quality enhancing
strategy)
– Customers have readily available alternatives for
the same services or products
• Suppliers: bargaining power of suppliers
controls how much they can raise prices above
their costs or reduce the quality before losing
customers

19. Political – Legal Forces
• Societies try to resolve conflicts over values and
beliefs through their political and legal systems.
• For many industries government regulation is a
central aspect of their environments e.g. pharma,
chemicals, atomic energy, etc
• Managers can use 5 basic political strategies to
cope with turbulence in environment ( next
figure)

20. Managerial Political Strategies
(adapted from Figure 3.4)
• Negotiation
• Lobbying
• Alliance
• Representation
• Socialization
• Political action
• committees (PACs)
• Laws
• Government
• Labor unions
• NGOs, Others
Political Strategies Political-Legal Forces

21. Political Strategies
•
• Negotiation: process by which two or more
individuals or groups having common and
conflicting goals, present & discuss proposals
in an attempt to reach an agreement.
• Lobbying: attempt to influence government
decisions by providing officials with
information on the likely effects of legislation
or regulatory rulings

22. Political Strategies
• Alliance: a combined effort involving tow or
more organizations, groups, or individuals to
achieve common goals with respect to a
particular issue
• Representation: involves membership in an
outside organization that serves the interests of
member’s organization or group e.g CII, other
employers’ organizations, ILC, etc

23. Political Strategies
• Socialization: process by which people learn
the values held by an organization and the
broader society

24. Technological Forces
• Many new technologies are radical enough to
force organizations to reconsider their
purposes and methods of operation or face
extinction
• IT creates new options for managers which
were not available earlier;
– CAD linked to CCM (computer controlled
machines) leads to short production runs with
large scale mfg facilities

25. Technological Forces
– Shopping on internet
– Online financial management systems – daily P&L
A/C,
– Retail banking operations from remote locations
– Online ordering, distribution, and sales
– Advances in design & manufacturing technology
– Mass customization – ability to produce wide
variety of products by using same basic design &
production equipment
– Use of CAD by Levi Strauss to help design
customized leather outfits & jeans for customers
– Robots replacing employees on assembly lines

26. Managing Globally

27. Pressures faced by MNCs
• Several global forces force many companies;
– Pressures on prices
– Need for cost cutting
– Global expansion and
– Impact of changes in the financial arena on
profitability

28. Global Economic Trends
(adapted from Table 4.1)
1. Foreign exchange rates
2. Importance of exports and
imports
3. Expanding nature of trade
4. Worldwide communication
5. Borderless organizations
6. Worldwide labour pool

29. Culture
• 5 aspects of a culture have direct implications
for international management (figure on next
slide)

30. Culture
Five Aspects of Culture
(adapted from Figure 4.1)
Cultural
Distance
Social
Change
Value
Systems
Language Time
Orientation

31. Culture Defined
• “ the collective programming of the minds
which distinguishes the members of one
human group from another …….
Culture in this sense, includes systems of
values; and values are among the building
blocks of culture”.
-Geert Hofstede

32. Culture Defined
• “ Habitual and traditional ways of thinking,
feeling and reacting that are characteristic of the
ways a particular society meets its problems at a
particular point of time”.
- Robert Kluckhohn & Leighton
Working Definition:
• “ As a system of values and norms that are shared
among a group of people and that, when taken
together, constitutes a design for living”.
– Values mean abstract ideas about what a group
believes to be good, right & desirable.
Values are shared assumptions about how things ought to be.

33. Culture Defined
– Norms mean social rules & guidelines/laws that
prescribe appropriate behavior in particular
situations.
– Society means a group of people who share a
common set of values & norms.

34. 5 Aspects of Culture
1. Views of Social Change:
– People of many non western countries ( India, China
& Saudi Arabia) take change as a part of evolution of
human beings,
whereas western cultures view change as shaped &
controlled to achieve their goals & aspirations &
– try to introduce innovations too rapidly.
Whereas, there is high resistance to change in non
western countries

35. 5 Aspects of Culture (contd)
2. Time Orientation:
– Western countries view time as money, need to set
deadlines & sticking to them. In some cultures, time is
viewed as more of an unlimited & unending resource.
3. Language
4. Values System:
– Power distance
– Uncertainty avoidance
– Individualism
– Masculinity
– Long-term & Short-term Orientation
5. Cultural Distance

36. Hofstede’s Framework
1. Power Distance – the degree to which less powerful
members of society accept that power is unequally
divided.
2. Uncertainty Avoidance – the extent to which members of
a culture feel threatened by risky or unknown situations.
3. Individualism – is a combination of the degree to which
society expects to take care of themselves and their
immediate family and the degree to which people believe
they are masters of their own destinies.
4. Masculinity – the degree to which assertiveness and the
acquisition of money and material things are valued.
5. Long-Term/Short-Term Orientation – reflects the extent
to which a culture stresses that its members accept
delayed gratification of material, social, and emotional
needs.

37. Definition of Cultural Dimensions
(GLOBE Study)
1. Power distance: The degree to which organizations and societies
accept power.
2. Institutional collectivism: The degree to which organizational
and institutional practices encourage collective action.
3. In-group collectivism: The degree to which individuals in
societies reflect collectivist behavior.
4. Uncertainty avoidance: The degree to which organizations and
societies avoid uncertainty by relying on practices and
procedures.
5. Performance orientation: The degree to which upper
management in organizations and leaders in societies reward
group members for performance excellence.

38. Definition of Cultural Dimensions (GLOBE
Study)
6. Assertiveness: The degree to which individuals in organizations
or societies are assertive in social relationships.
7. Future orientation: The degree to which individuals in
organizations or societies plan for the future.
8. Gender egalitarianism: The degree to which organizations or
society promote gender equality.
9. Humane orientation: The degree to which individuals in
organizations or societies reward individuals for positive behavior.
Exercise: What are your cultural values?
Reply the questionnaire – Page 77

39. Cultural Profile (GLOBE Study)
• Power distance:
o India: 5.47 (rank 16).
o Morocco : 5.80 (highest score).
• Institutional collectivism:
o India : 4.38 (rank 25).
o Sweden: 5.22 (highest score).
• In-group collectivism:
o India: 5.92 (rank 4).
o Philippines: 6.36 (highest score).
• Uncertainty avoidance:
o India: 4.15 (rank 29).
o Switzerland: 5.37 (highest score) .
Source: Chhokar, J., Brodbeck, F., & House, R (Eds) .(2007). Culture and leadership across the
world. The GLOBE book of in-depth studies of 25 societies. Lawrence Erlbaum Associates.
Mahwah, New Jersey.

40. Cultural Profile (GLOBE Study)
• Performance orientation:
o India: 4.25 (rank 9).
o Switzerland : 4.94 (highest score).
• Assertiveness:
o India: 3.73 (rank 53).
o Albania : 5.80 (highest score).
• Future orientation:
o India : 4.19 (rank 15).
o Singapore: 5.07 (highest score).
• Gender egalitarianism:
o India: 2.90 (rank 55).
o Hungary: 4.08 (highest score).
• Humane orientation:
o India: 4.57 (Rank 9).
o Zambia: 5.23 (highest score).©SHRM 2008 40

41. Political-Legal Forces
• Political risk is the probability that political
decisions or events in a country will negatively
affect the long-term profitability of an
investments.

42. Political Mechanisms/Policies
1. Protectionism - refers to the many mechanisms designed
to help home-based industries or firms, and avoid or
reduce potential or actual competitive threats from
abroad.
– A tariff is a government tax on goods or services entering the
country.
– A quota is a restriction on the quantity of a country’s imports
and sometimes exports.
– A subsidy is a direct or indirect payment by a government to
domestic firms to make selling or investing abroad cheaper for
them.
– A cartel is an alliance of producers engaged in the same type of
business that is formed to limit or eliminate competition and
control production and prices.

43. Political Mechanisms
2. Bribe is an improper payment made to induce
the recipient to do something for the payer.
3. Extortion is a payment made to ensure that the
recipient doesn’t harm the payer in some way.

44. Global Trade Agreements
• Earlier global competition was considered country
against country.
• Now it is shaped by regional trading agreements;
1. The World Trade Organization was established in 1995
as an outgrowth of the General Agreement on Tariffs
and Trade (GATT) (150 member countries)
• Key functions of WTO;
√ Administrating WTO trade agreements
√ Providing a forum for trade negotiations
√ Handling trade disputes between nations
√ Monitoring national trade policies
√ Providing technical assistance & training to developing
countries

45. Global Trade Agreements
2. North American Free Trade Agreement (NAFTA) among
US, Canada & Mexico - free trade zone
3. European Union - 27 members. Common currency since
2001 – goal of creating single market & beyond i.e.
social changes, educational degrees, etc. Britain decides
to exit
4. SAARC (South Asian Association for Regional
Cooperation): Bangladesh, bhutan, India, Maldives, Nepal, pakistan & sri lanka
5. ASEAN (Association of Southeast Asian Nations): 10 countries
6. ISO: international organization for standardization issues
certification standards for excellence in quality

46. Strategies for International Business
1. Exporting strategies: Maintaining facilities in
home country & shipping goods abroad for
sale
2. Licensing strategy: right to use license,
patent, technology in other country for
payment of royalty/fee
3. Franchising strategy: parent organization
granting other Cos/individuals right to use its
trademarked name & produce/sell its goods

47. Strategies for International Business
4. Alliance strategy: involves agreement between two
or more Cos to pool physical, financial, and human
resources to achieve common goals.
5. Multi-domestic strategy: involves adjusting
products, services & practices to individual
countries or regions (e.g. PepsiCo)
6. Global strategy: stresses worldwide consistency,
standardization and relatively low cost.
Subsidiaries are highly interdependent e.g. Intel’s
Pentium Chips, American Express, Apple)

48. Thanks…..