CH 04

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The International
Business Environment
• International management, management of business

operations in more than one country
• The fundamental tasks of business management do
not change
• The basic management functions are the same
• Greater difficulties and risks when performing these
management functions
Developed by Cool Pictures & MultiMedia Presentations Copyright © 2003 by South-Western, a division of Thomson Learning. All rights reserved.
Four Stages of Globalization
Domestic stage:
market potential is limited to the home country
production and marketing facilities located at home
International stage:
exports increase
company usually adopts a multi-domestic approach
Multinational stage:
marketing and production facilities located in many countries
more than 1/3 of its sales outside the home country
Global (or stateless) stage:
making sales and acquiring resources in whatever country offers the
best deal
ownership, control, and top management tend to be dispersed
Stage of Globalization
1. Domestic 2. International 3. Multinational 4. Global
Strategic Orientation Domestically Export- Oriented Multinational Global

Oriented multi-domestic
Stage of Development Initial foreign Competitive Explosion of Global

involvement positioning international
operations
Cultural Sensitivity Of little Very important Somewhat Critically

importance important important
Manager Assumptions “One best “Many good “The least-cost “Many good
way” ways” way” ways”
SOURCE: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4 th ed. (Cincinnati, Ohio: South-Western, 2002),
8-9.
Economic Environment Issues
• Economic development
• Infrastructure
• Resource and product markets
• Exchange rates
• Inflation
• Interest rates
• Economic growth
Economic Development
 Countries can be categorized as either “developing” or
“developed”
 Criterion used to classify is per capita income
 Developing countries have low per capita incomes
 LDCs are generally located in Asia, Africa, and South
America
 Developed countries include North America, Europe,
and Japan
 Driving global growth is Asia, Eastern Europe, and
Latin America
The Legal-Political Concerns
Political Risk
• Loss of assets
• Loss of earning power
Laws and Regulations • Loss of managerial
•Libel statues control
•Consumer protection • Government takeovers
•Information and labeling • Acts of violence
•Employment
•safety
•Wages International
Organization
Political Instability
•Riots
•Revolutions
•Civil disorders
•Changes in government
International Trade Agreements
• Most visible changes in legal-political

factors grow out of international trade
agreements:
– GATT
– WTO
– EU “The World Trade Organization (WTO) is
the only global international organization
dealing with the rules of trade between
– NAFTA nations. The goal is to help producers of
goods and services, exporters, and importers
conduct their business.”
International Environment
 General Agreement on Tariffs and Trade (GATT)

 Signed by 23 nations in 1947 as a set or rules
 Ensured nondiscrimination, clear procedures, negotiation of
disputes, and participation of lesser developed countries in
international trade
 Today, 100 member countries abide by the rules
 Primary tools GATT uses on tariff concessions, countries
agree to limit level of tariffs on imports from other GATT
members
 Most favored nation clause
WTO
• Goal, is to guide and sometimes urge the nations of

the world toward free trade and open markets
• Encompasses GATT and all of its agreements
• Has legal authority to arbitrate disputes on 400 trade
issues
• Partly responsible for backlash against global trade
European Union
• Formed in 1958 to improve economic and social

conditions
• Has 15-nation alliance
• Initiative Europe ’92 called for creation of open markets
for Europe’s 340 million consumers
• Observers fear that the EU will become a trade barrier
• EU’s monetary revolution, introduction of the Euro
• Euro is the single European currency that replaced 11
national currencies
• Eventually replace up to 15 domestic currencies
Fifteen Nations of The EU
North American Free Trade Agreement
 Went into effect on January 1, 1994

 Merged the United States, Canada, and Mexico
with more that 360 million consumers
 Breaks down tariffs and trade restrictions on most
agriculture and manufactured products
 August 12, 1992 agreements in number of key
areas include: agriculture, autos, transport, &
intellectual property
Four Dimensions of National Value System
International Cultural Influences
• Language
• Religion
• Attitudes
• Social Organization
• Education
Strategies for Entering
International Markets
High Ownership of Foreign Operations
Greenfield
Venture
Acquisition
Joint Venture
Franchising
Licensing
Exporting
Low Low Cost to Enter Foreign Operations High
Managing in a Global Environment
Managers must be sensitive to cultural subtleties in:

• leadership
• decision making
• motivation
• control
• must be culturally flexible and easily adapt to new
situations
• cannot be ethnocentric
• Culture Shock may lead to frustration and anxiety

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Developed by Cool Pictures & MultiMedia Presentations Copyright

• International management, management of business

1. Domestic 2. International 3. Multinational 4. Global

Strategic Orientation Domestically Export- Oriented Multinational Global

Stage of Development Initial foreign Competitive Explosion of Global

Cultural Sensitivity Of little Very important Somewhat Critically

• Most visible changes in legal-political

 General Agreement on Tariffs and Trade (GATT)

• Goal, is to guide and sometimes urge the nations of

• Formed in 1958 to improve economic and social

 Went into effect on January 1, 1994

Managers must be sensitive to cultural subtleties in:

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