The Environment of
International Business
Organizations
Chapter Outline


The Organization’s Environments
 The General Environment
 The Task Environment
 The Internal Environment
The Ethical and Social Environment of Management
 Individual Ethics in Organizations
 Social Responsibility and Organizations
 Managing Social Responsibility
2
Chapter Outline (cont’d)


The International Environment of Management
 Trends in International Business
 Managing the Process of Internationalization
 Levels of International Business Activity
 The Context of International Business
The Organization’s Culture
 The Importance of Organization Culture
 Determinants of Organization Culture
 Managing Organization Culture
3
The Organization’s Environment
 External
Environment
General environment is everything outside an
organization’s boundaries—economic, legal,
political, socio-cultural, international, and
technical forces.
Task environment is composed of specific
groups and organizations that effect the firm.
 Internal
Environment
Conditions and forces within an organization.
4
The Organization and Its Environments
International
dimension
Technological
dimension
Competitors
Regulators
Politicallegal
dimension
General environment
Strategic
partners
Suppliers
Economic
dimension
Sociocultural
dimension
Internal environment
Task environment
Owners
Customers
Employees
Physical environment
Board of directors
Culture
External
environment
5
The External Environment
 The
General Environment
The set of broad dimensions and forces in an
organization’s surroundings that create its
overall context.
Economic dimension is the overall health and
vitality of the economic system in which the
organization operates.
Technological dimension refers to the
methods available for converting resources into
products or services.
6
The External Environment

The General Environment (cont’d)
Sociocultural dimension includes the
customs, mores, values, and demographic
characteristics of the society in which the
organization functions.
Political-legal dimension is the extent of
government regulation of business and the
general relationship between business and
government.
International dimension is the extent to which
the organization is affected by business in other
countries.
7
The External Environment

The Task Environment
 Specific groups affecting the organization
Competitors seeking the same resources as the
organization.
Customers who acquire an organization’s products
or resources.
Suppliers that provide resources for the
organization.
Regulators (agencies and interest groups) that
control, legislate, or influence the organization’s
policies and practices.
Strategic partners (allies) who are in a joint venture
or partnership with the organization.
8
McDonald’s Task Environment
Regulators
• Food and Drug
Administration
• Securities and
Exchange
Commission
• Environmental
Protection
Agency
Competitors
• Burger King
• Wendy’s
• Subway
• Dairy Queen
McDonald’s
Strategic Partners
• Wal-Mart
• Disney
• Foreign partners
Customers
• Individual
consumers
• Institutional
customers
Suppliers
• Coca-Cola
• Wholesale food
processors
• Packaging
manufacturers
Internal environment
Task environment
Figure 2.1 9
How
Organizations
and
Environments
Interact
10
How Business and Government
Influence Each Other
The government influences business
through direct and indirect regulation:
The
Government
•
•
•
•
•
Environmental protection legislation
Consumer protection legislation
Employee protection legislation
Securities legislation
The tax codes
Business influences the government
through:
•
•
•
•
Personal contacts and networks
Lobbying
Political action committees (PACs)
Favors and other influence tactics
Business
11
Five-Forces Analysis (Porter)
12
The Internal Environment
 Conditions
and stakeholder forces within an
organization
Owners with legal property rights to a
business.
Board of directors elected by the stockholders
to oversee the general management of the firm
to best serve the stockholders’ interest.
Employees who work for the firm and have a
vested interest in its continued operation and
existence.
Physical work environment of the
13
organization and the work that people do.
Individual Ethics In Organizations
 Ethics
An individual’s personal beliefs regarding what
is right and wrong or good and bad.
 Ethical
Behavior
This behavior is in the eye of the beholder.
However, it also refers to behavior that
conforms to generally accepted social norms.
 Examples
of Unethical Behavior
“Borrowing” office supplies for personal use.
“Surfing the Net” on company time.
14
Determinants of Individual Ethics
15
Managerial
Ethics
Three areas of concern
for managerial ethics
• The relationships of
the firm to the
employee.
• The employee to the
firm.
• The firm to other
economic agents.
• Conflicts of interest
• Secrecy and
confidentiality
• Honesty
Employees
Organization
• Hiring and firing
• Wages and working
conditions
• Privacy and respect
Subject to ethical ambiguities
• Advertising and promotions
• Ordering and purchasing
• Bargaining and negotiation
• Financial disclosure
• Shipping and solicitation
• Other business relationships
Economic Agents
• Customers
• Competitors
• Stockholders
• Suppliers
• Dealers
• Unions
16
Ethics in Organizations
 Managing
Ethical Behavior
Begins with top management which establishes
the organization’s culture and defines what will
and will not be acceptable behavior.
Includes training on how to handle different
ethical dilemmas.
Developing a code of ethics.
Written statement of
the values and ethical
standards that guide
the firm’s actions.
17
Social Responsibility and Organizations
Social Responsibility
The set of obligations (to behave responsibly)
that an organization has to protect and enhance
the social context in which it functions.
 Areas of Social Responsibility
Stakeholders: customers, employees, and
investors.
The natural environment: environmentally
sensitive products, recycling, and public safety.
The general social welfare: charitable
contributions, and support for social issues such
as child labor and human rights.
18

Arguments For and Against
Social Responsibility
Arguments For Social Responsibility
Arguments Against Social Responsibility
1. Business creates problems and
should therefore help solve them.
1. Business lacks the expertise to
manage social programs.
2. Corporations are citizens in our
society.
2. Involvement in social programs
gives business too much power.
Social
Responsibility
3. Business often has the resources
necessary to solve problems.
3. There is potential for conflicts
of interest.
4. Business is a partner in our
society, along with the government and the general population.
4. The purpose of business in U.S.
society is to generate profit
for owners.
Figure 2.219
Arguments
For
and
Against
Social
Responsibility
20
Approaches to
Social
Responsibility
Source: Barney, Jay B. and Ricky W. Griffin, The
Management of Organizations. Copyright © 1992 by
Houghton Mifflin Company. Used with permissions.
21
Managing Social Responsibility:
Formal Organizational Dimensions
 Legal
Compliance
Extent to which the organization conforms to
local, state, federal, and international laws.
 Ethical
Compliance
Extent to which members of the organization
follow basic ethical/legal standards of behavior.
 Philanthropic
Giving
Awarding of funds or gifts to charities and other
social programs.
22
Managing Social Responsibility:
Informal Organizational Dimensions
 Organizational
Leadership and Culture
Leadership practices and the culture of the
organization can help define the social
responsibility stance an organization and its
members will adopt.
 Whistle
Blowing
The organizational response to the disclosure
by an employee of illegal or unethical conduct
on the part of others within the organization is
indicative of the organization’s stance on social
23
responsibility.
Trends in International Business



Economic Recovery
 Industrialized nations in
Europe and Asia have
rebuilt their economic
systems that were
devastated in WWII.
Decreasing Isolation from Foreign Competition
 U.S. consumer goods markets are open to overseas
competitors.
Increasing Globalization of World Markets
 Volume of international trade has increased more
than 3,000% from 1960 to 2000.
24
Managing The Process of Globalization
 Exporting
Making a product in the firm’s domestic market
and selling it in another country.
 Importing
Bringing a good, service, or capital into a home
country from abroad.
 Licensing
An arrangement whereby a firm allows a foreign
company to manufacture or market the products
and uses its brand name, trademark,
technology, patent, copyright, or other assets.
25
Managing The Process of Globalization
 Strategic Alliance
and Joint Ventures
Two or more firms jointly cooperate for
mutual gain, by sharing business costs
and/or sharing ownership of a new
enterprise.
 Direct
Investment
Occurs when a firm headquartered in one
country builds or purchases operating
facilities or subsidiaries in a foreign country.
Maquiladoras are light-assembly plants built in
northern Mexico close to the U.S. border which
are given special tax breaks by the Mexican
government.
26
Managing The Process of Globalization
27
Environmental Challenges
of International Management
28
Advantages and Disadvantages of
Various Approaches to
Internationalization
A p p ro a c h e s to
In te rn a tio n a liz a tio n
A d v a n ta g e s
D is a d v a n ta g e s
Im p ortin g o r
1 . Sm a ll c a s h o u tla y
1.
T a riffs a n d ta x e s
E x p o rtin g
2 . L ittle ris k
2.
H ig h tra ns p o rta tio n c o sts
3 . N o a d a pta tio n n e c e s sa ry
3.
G o v ernm e n t re strictio ns
1 . In c rea s e d p rofita bility
1.
In fle xib ility
2 . E x te n d e d p rofita bility
2.
H e lp s c om pe titors
S trate g ic A llia n c e/
1 . Q uic k m ark e t e ntry
1.
S h a re d o w n e rs hip (lim its
J o in t V e ntu re
2 . A c c e s s to m ate rials a n d te c h n olo g y
D ire ct In v e stm e n t
1 . E n h a n c e s c o n tro l
1.
C om p le x ity
2 . E x is tin g infras tru c ture
2.
G rea ter e co n om ic a n d
L ic e n sin g
c o n trol a n d p rofits )
p o litic a l ris k
3.
G rea ter u nc e rta inty
Table 2.129
Controls on International Trade
 Key
Concepts
Tariffs are collected on goods shipped across
national boundaries.
Quotas are limits placed on the number or
value of goods that can be traded as exports
or imports.
Export restraint agreements
are voluntary limits on the
volume or value of goods
exported to, or imported
from, another country.
30
The Structure of the Global
Economy
 Economic
Communities
Sets of countries that engage in high levels
of trade with each other through the elimination
of trade barriers such as quotas and tariffs.
European Union (EU)
North American Free Trade Agreement (NAFTA)
Latin American Integration Association
Caribbean Common Market
31
European
Union
(EU)
Member
Nations
Source: Lucas,
George H.,
Robert P. Bush,
and Larry R.
Gresham,
Retailing.
Copyright ©
1994 by
Houghton
Mifflin
Company. Used
with
permissions.
Figure 2.3
32
The Cultural Environment


Language
 In Japanese the word “hai” can
mean either “yes” or “I understand.”
 General Motors’ brand name “Nova”
pronounced as “no va” in Spanish
means “doesn’t go.”
The Meaning of Colors
 Green is popular in Muslim countries, yet it signifies
death in other countries.
 Pink is associated with feminine characteristics in the
U.S.; yellow is the most feminine color in other
countries.
33
The Organization and Culture
 Organization
Culture
The collection of values, beliefs, behaviors,
customs, and attitudes that characterize a
community of people.
 The
Importance of Organization Culture
Culture determines the overall “feel” of the
organization, although it may vary across
different segments of the organization.
Culture is a powerful force that can shape the
firm’s overall effectiveness and long-term
success.
34
The Organization’s Culture
 Determinants
of Organization Culture
Organization’s founder (personal values and
beliefs).
Symbols, stories, heroes, slogans, and
ceremonies that embody and personify the spirit
of the organization.
Corporate success that strengthens the culture.
Shared experiences that
bond organizational members
together.
35
Organization Culture (cont’d)
 Managing
Organization Culture
Understand the current culture to understand
whether to maintain or change it.
Articulate the culture through slogans,
ceremonies, and shared experiences.
Reward and promote people
whose behaviors are
consistent with desired
cultural values.
36
Organization Culture
 Changing
Organization Culture
Develop a clear idea of what kind of
culture you want to create.
Bring in outsiders to important
managerial positions.
Adopt new slogans, stories,
ceremonies, and purposely
break with tradition.
37