ChapterChapter- 2 Critical Forces of Business Environment

Components of International Business Environment

Global Environment Foreign Environment Domestic Environment Micro Environment

Internal Environment

External Environment
Micro Environment


Macro Environment

Micro Environment: Actors in the firm s Environment: immediate environment. environment. Influence the firm s decisions & operations directly. directly. Do not affect all the firms in an industry in way. the same way. Macro environment: Wider societal forces, environment: which affect the firm and also the players in the firm s micro environment. environment.
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Micro Environment
Competitors Customers Suppliers

General Public Marketing Intermediaries



Financial Institutions

Actors in the firm s immediate environment.

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Macro Environment
Economic Env National Business Political Socio-cultural Demographic Technological Non Economic Env

Global

Macro Environment


1. 2. 3.

Forces operate at home (domestic) country, host (foreign) country and global levels. levels. Comprises of economic and non-economic nonenvironmental forces. forces. Economic environment of business both national and global is of strategic importance. importance. A firm is an economic unit. unit. Business activities are economic activities. activities. Business decision making are economic in nature. nature.
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Major Critical Economic Forces



 

Economic indicators (GNI, GNI PPP, GDP, GNI Per Capita, GDP Growth Rate etc) Economic system Economic plans and policies- Monetary, policiesfiscal, trade and commerce. Economic problems and prospects

GNI and GNI, PPP for SAARC Nations, 2006

Country
India Pakistan Bangladesh Sri Lanka Nepal Bhutan Maldives SAARC Total World

GNI ($ billions)
909.1 126.7 70.5 26.0 8.8 928 (mil) 903 (mil) 1142.9 48,694.1

GNI, (PPP) ($ billions)

2726.2 (80.0%) 382.8 (11.2%) 191.9 (5.6%) 74.2 (2.2%) 27.8 (0.8%) 2.6 (0.07%) 1.4 (0.04%) 3406.9 (5.7%) 60,209.9 (100.0%)
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Source: Source: Compiled from the Little Data Book, 2008, WB. 2008, WB.

SAARC nations together represents 5.7% of the world GNI, PPP. PPP. Among the seven nations, India concentrates 80% of GNI, PPP of the total 80% highest. SAARC nations, which is highest. Three countries: Nepal, Bhutan and countries: Maldives have less than 1% of gross income (PPP) to total SAARC GNI, PPP. PPP. Among the SAARC nations, while India represents the biggest in size and activity, economic activity, the case of Maldives is the smallest. smallest.
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GNI and GNI, PPP for Countries of ASEAN, 2006

Country Singapore Philippines Malaysia Brunei Vietnam Cambodia Lao PDR Myanmar Thailand Indonesia ASEAN Total World GNI ($ billions) 128.8 120.2 146.8 10.3 58.5 7.0 2.9 193.7 315.8 984.0 48,694.1 GNI, (PPP) ($ billions) 194.1 (8.6%) 296.2 (13.1%) 317.4 (14.0%) 19.1 (0.8%) 194.4 (8.6%) 22.1 (1.0%) 10.0 (0.4%) 472.2 (20.9%) 737.2 (32.6%) 2262.7 (3.7%) 60,209.9 (100.0%)
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Source: Source: Compiled from the Little Data Book, 2008, WB. 2008, WB.

ASEAN total represents 3.7% of the world GNI, PPP. PPP. Among the ten countries, the share of Indonesia to total ASEAN GNI, PPP is about 33%, which is the highest. 33% highest. Brunei though is a high income country, represents less than 1% of its national income to GNI, PPP of ASEAN. ASEAN. Among the ASEAN, Lao PDR size of economic activity is limited and smallest. smallest. Next to Indonesia, Thailand represents about 21% share of GNI, PPP of ASEAN. 21% ASEAN.
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GDP and GDP Growth Rates for SAARC Nations, 2006

Country India Pakistan Bangladesh Sri Lanka Nepal Bhutan Maldives World
Note:

GDP ($ billions) 911.8 126.8 61.9 27.0 8.9 0.9 0.9 48,461.9

GDP Growth (annual %) 9.2 6.9 6.6 7.4 2.8 8.5 23.5 3.8

Economy Type LI LI LI LMI LI LMI LMI Lower

HI High Income, UMI Upper Middle Income, LMI Middle Income, LI Low Income.

Source: Compiled from the Little Data Book, 2008, WB.

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Except Nepal, all the six SAARC nations Nepal, have their economic growth rates above the rate of growth of the world as a whole. whole. Except Maldives, among the six SAARC nations, India has the highest growth rate in 2006 approaching to 10%. 10% Maldives has the highest growth rate of double digit approached to 24%. 24% Keeping its size and growth, India is expected to be one of the leading economies and hot markets in the world in future. future.
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GDP and GDP Growth Rates for Countries of ASEAN, 2006

Country Singapore Philippines Malaysia Brunei Vietnam Cambodia Lao PDR Myanmar Thailand Indonesia World
Note:

GDP ($ billions) 132.2 117.6 150.7 11.6 61.0 7.3 3.4 206.3 364.8 48,461.9

GDP Growth (annual %) 7.9 5.4 5.9 5.1 8.2 10.8 7.6 5.0 5.0 5.5 3.8

Economy Type HI LMI UMI HI LI LI LI LI LMI LMI Lower

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HI High Income, UMI Upper Middle Income, LMI Middle Income, LI Low Income.

Source: Compiled from the Little Data Book, 2008, WB.

Among the ASEAN, the growth rate of Cambodia is the highest (10.8%). 10. Despite Cambodia s limited market size, its high growth represents future expansion of market and markets for the products of international business. business. All the economies of ASEAN have their economic growth rates above the world economic growth rate. rate.
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GNI Per Capita and GNI PC, PPP for SAARC Nations, 2006
Country India Pakistan Bangladesh Sri Lanka Nepal Bhutan Maldives World Note: GNI Per Capita ($) 820 800 450 1,310 320 1,430 3,010 7,448 GNI Per Capita, PPP ($) 2,460 2,410 1,230 3,730 1,010 4,000 4,740 9,209 Economy Type LI LI LI LMI LI LMI LMI Lower

HI High Income, UMI Upper Middle Income, LMI Middle Income, LI Low Income.

Source: Compiled from the Little Data Book, 2008, WB.

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Among SAARC nations, Nepal shows the lowest GNI PC and PPP. PPP. Four SAARC nations, India, Pakistan, Bangladesh, Nepal are the low income countries, as their GNI PC is $ 905 or less. less. Countries, such as Luxembourg, US, richest, Norway etc. are among the richest, while etc. large economy like India is poor. poor. Despite its large number of poor people, India has a fairly wealthy middle class around 300-400 million people which shows 300its attractiveness. attractiveness.
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GNI Per Capita and GNI PC, PPP for Countries of ASEAN, 2006
Country Singapore Philippines Malaysia Brunei Vietnam Cambodia Lao PDR Myanmar Thailand Indonesia World Note: GNI Per Capita ($) 28,730 1,390 5,620 26,930 700 490 500 3,050 1,420 7,448 GNI Per Capita PPP ($) 43,300 3,430 12,160 49,900 2,310 1,550 1,740 7,440 3,310 9,209 Economy Type HI LMI UMI HI LI LI LI LI LMI LMI Lower

HI High Income, UMI Upper Middle Income, LMI Middle Income, LI Low Income.

Source: Compiled from the Little Data Book, 2008, WB.

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Among ten nations, Vietnam, Cambodia, Lao PDR and Myanmar are the low income countries. countries. Singapore and Brunei are the high income countries as their GNI PC is above $11,116. 11,116. Malaysia (upper middle income) now presents one of the attractive markets in the region. region. Cambodia though a least developed country (LDC) provides an attractive destination for LDC) foreign investors due to its economic growth. growth.
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As estimated (Goldman, 2003) China 2003) economy will overtake Japan by 2015 and US by 2041. 2041. India s economy would be larger than France in 2020 and Japan 2032. 2032. By 2050, China will be the largest economy 2050, in the world followed by US and India. India.

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Domestic Environment


All the uncontrollable forces originating in the home country that surrounds and influence the life and development of the firm. firm.

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Domestic Environment

Competitive Structure

Economic climate

Political & Legal forces Uncontrollable IMPACT ?

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Domestic firms venture into international business

Lack of domestic demand and/or Intense Competition Export Promotion Measures and/or Economic Incentives
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Foreign Environment
Geographical factors Economic conditions SocioSocio-Cultural environment Political environment Technological environment Legal forces
Uncontrollable forces originating outside the home country that surround and influence the firm.
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Global Environment
    

World Economic Conditions International Financial Systems Working of WTO, IMF, WB.. International Agreements & Treaties Regional Economic Groupings
European Union (EU) North American Free Trade Association (NAFTA) Association of South East Asian Nations ( ASEAN) Association of South Asian Regional Cooperation (SAARC)

Exerts influence over domestic as well as foreign Countries.

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NonNon-Economic Environment

Political

Socio-Cultural

Legal

Technological Ecological

Geographical

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Political

Form of Government

Political Party System

Political Ideology

Role of Government

Political Stability
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SocioSocio-Cultural

Language Attitude & values

Education Religions & Superstition

Social groups & Organizations

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Environmental forces and Decisions of a Firm

 

  

What should be the scale of production? production? Should the firm employ labor intensive or capital intensive techniques? How to finance firm's foreign operations? How much to repatriate? repatriate? Should the firm hire local persons or employ foreign nationals? What should be their compensation package?
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