Global Business Environment

A detailed analysis of business environment of a market is a pre-requisite for formulating an effective business strategy because B E has a significant bearing on companys operations.

 Various elements of B E have to be studied to evaluate the suitability of the market from the companys standpoint.

Various elements of B E
Economic Political Legal Technological Cultural Geographic Infrastructure Demographic competition

Economic Environ.
Performance of the economy-GDP/GNI Per capita income World Bank in 2004 has classified countries: Low income-p c GNI $825 Middle income p c GNI 826 to10025 (lower MI 826 to 3255; upper MI 3256 to 10065) High income 10066 and above

 Pc GNI is not true indicator of purchasing power or living standards. e.g. India has pcGNI of $530. PPP is taken as measure to determine living standards. GNI is adjusted to PPP to reflect living standards. So $530 becomes $2880. Chinas $1100 becomes $4990.

 Distribution of income is more important than p c income. Large population results in lower pc income. There could be large sections of population which are affluent. India has fairly wealthy middle class of 300 million. How pc income is distributed is equally important.

 Brazil has a GNI of $1.4 trillion and p c GNI of $ 2710. Richest 20% account for 60% of total income and 20% poorest account for 3% of total income

 Inflation Unemployment Balance of payments Foreign exchange reserves Debt Fiscal/monetary/labour/industrial policy etc World Bank/IMF/ADB/country reports.

Economic systems
Free market (capitalist)-productive activities are privately owned Centrally planned (communist)-state owned Mixed

Political environ.
Political system means the system of govt. A) democratic-characterised by fundamental rights and civil liberties two party/three party/multiparty/single party/one party dominated system. Democratic system does not necessarily guarantee stability e.g. India

 B) Absolutist or totalitarian system Communist T.-North Korea, Cuba, China, Vietnam, Laos. Tribal T. African countries contain large no. of tribes. Political party that represents a tribe monopolises power. e.g. Tanzania, Uganda, etc.

 Theocratic T.- political ideology based on religion e.g. Iran, S.A. Rightwing T.- permits some form of economic freedom but no political freedom. Similar to dictatorship seen in Latin America, South E.A. but since 80s they have been replaced by democratic setups.

 Political system shapes economic and legal system( political economy) Business policy is dictated by political ideology Britain-Labour party known for regulation and restriction U.S. Republicans known for more liberal policies compared to democrats.

 Political equation dictates economic ties. e.g. Russia and India, Arabs and Israel

Legal environ.
Laws, rules their enforcement and justice system Legal system is of great importance to businessman as strong and sound system is conducive to business.

 Common law: Evolved in Britain and followed in US, Canada and former british colonies. It is based on tradition, past practices,legal precedents.It has degree of flexibility. Civil law: based on detailed set of laws organised into codes.It has less flexibility.Followed in Germany, France, Japan

 Theocratic law: law based on religion. Followed in many middle east countries.This could extend to commercial activities(Islamic banking dictates that interest should not be taken/given on money Mixed law: two laws could be adopted

 Russia and China earlier followed commercial legal system. After transition to market based economic system these countries are moving to market oriented legal system. Laws are not firmly in place and they are subject to various interpretations.

 Whether country is a signatory to international laws/conventions/treaties Environmental laws/packaging labelling Product safety/ advertising laws Cyber laws:Internet is a unique entity which has no political or national boundaries.Existing laws are very vague.Cyber attacks are a major challenge to business.

 Protection of intellectual property rights Many countries have laws but the enforcement is weak due to which piracy is rampant. Many countries are members of World Intellectual property organisation(WIPO) but some do not comply with its charter

 Laws should be applicable world wide only then legal hassles can be untangled. Till then global businessman must protect his business interests by all possible means to minimise risks. Jurisdiction of courts in case of dispute between two parties. Conciliation/arbitration/litigation

Demographic environ.
This is all about people specific parameters. According to Peter Drucker demography has tremendous business implications. Age distribution of population Gender Birth rate, death rate Income distribution Occupation, education Social class

 Many Asian countries have high population growth resulting in high labour force which is relatively cheap. Scope exists for labour intensive industries.

Geographic environ.
Physical features/terrain/natural resources/climate

Infrastructure environ.
Power/roads/telecom/ports