Evaluate and assess the impact of global factors and the international business environment on organisational performance
Imagine how was life thirty years ago there was no personal computers, defiantly no laptops because of this there was no internet so there were no communication not only between people from other countries even people were in same countries.
Thomas Freidman defines globalisation “The inexorable integration of market, nation-state and technologies to a degree never witnessed before in a way enabling individuals, corporations and nation-states to reach around the world faster, deeper and cheaper than even before.
Globalisation is said to bring people of all nations closer together and is considered reshaping the world, refers to the trend towards countries joining together through education, social, political, culture economical and technological.
Global factors always impact on international business/trade all over the world according to Allan M (2009) international business refers to the study of transactions taking place across national borders for the purpose of satisfying the needs of individual and organization. International business in a further way which differs from domestic business is the greater complexity of managing an international business.
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Conducting business transactions across national borders requires understanding the rules governing the international trading and investment system. Managers in an international business must also deal with government restrictions on international trade and investment.
International business is much more complicated than domestic business because countries differ in many ways. Countries have different political, economical, social and legal system. All these differences can and do have major implications for the practice of international business. CHARLES W.L HILL (2007)
PEST analysis is an analysis of the political, economic, social and technological factors which affect an international business are being discussed below.
Factors impacting on international business:
The following factors could affect on international businesses.
The political system of any state consists of the structure and process by which it is governed. JANET MORUSION (2009). We live in a world which is organized as a patchwork of nation states within which different people live, with their own systems of government exerting authority over the affairs with their territory. Grouping within those territories may arise from time to time which seek a measure of independence from the central authorities.
In some countries most of people on nation conduct campaigns against foreign goods and products are being sold in their countries which could result loss of sale, increased cost of public relation campaigns to improve public image. And in some countries there is Mandatory labour benefits legislation system could result increased operations costs of the organization in international business. One of the important impact to be considered is kidnappings terrorist threats and other violence in international business could be resulted disturbing produce of goods, increased security costs and as well as soaring in managerial costs.
Communist government in Eastern Europe and China expropriated private firm after the Second World War. Wall and Rees (2007) civil wars could affect on international business destroying of property and lost of sales.
All nations have legal system that set boundaries for the behaviour of individuals and actions of corporations. Wild Wild Han (2008) Legal systems very enormously throughout the world and these have a significant impact on the ways of in which international business is conducted. While many large organizations employ their own lawyers to advise and settle any disputes and issues, it is vital that international managers themselves have some understanding of the likely impacts of legal systems in the countries in which the firm operating. Legal systems can affect the attractiveness of a country as investment site or market
Effects of national laws on international business
National laws affect international business in a variety of ways. There may be legal rules relating to specific aspects of business operations such as off-shore investment, the environment, ways in which financial accounts are prepared and disclosed, corporate taxation, employee rights and pensions provisions. Wall and Rees (2007)
National laws may also affect of the companies internal organisation for example health and safety polices and human recourses management as well. There many kinds of regulations might be imposed to restrict trade such as restricting access to high technology goods, boycotting the countries goods or refusing loans.
One the most restriction can be imposed that foreign ownership may be limited for the basis of political reason, for example Mexico restricts foreign ownership in its energy sector. Many countries impose legal restrictions if any foreign business shutting their business in order to protect the rights of employees of home countries. In china without approval of Chinese government no foreign business can be shunt down.
A country economic system consists of the structure and process that it uses to allocate its resources and conduct its commercial activates. Wild Wild Han (2008)
Economical factors are components of the economic environment that affects the organization. Economic indicators such as inflation, exchange rates, value of currency and level of unemployment can affect when doing international business. Campbell & Carig (2005)
inflation is the rate of increasing in the level of prices for goods and services which affect the purchasing value of money. According to Wall and Rees inflation is persistent tendency for the general level of prices to rise. Extra costs can more readily be passed on to consumers in the form of higher prices, excessive rates of inflation can result in instability and rapid increases in costs, often followed by deflationary macroeconomic measures by governments resulting in sharp decreases in consumer demand. Wall and Rees (2007)
Unemployment have a major impact on international business in any country, people buy products and services but if they are not in employment so they will be able to less products and services. The increase of unemployment often resulting in many countries affecting domestic and international business.
Set of values, beliefs, rules and institutions held by a specific group of people. Wild Wild Han, (2008) Culture as a system of values and norms that are shared among a group of people and that when taken together constitute a design for living. The socio-culture environment is regards in international business has many facts, one of the most important is the atmosphere of any country when doing business in any other country.
The national culture being one cardinal factor and an essential component in success equation of worldwide companies. The culture, as well as habits and also attitude became points of major interests in market and such importance is obvious as success of in international business, economy is free but, economic freedom is influenced by the national culture.
Culture an social consideration are perhaps the most constraining variable when doing business in a foreign country, such as the market implications of culture differences may be seen in form of number of activities within overall marketing function such as marketing research, understanding consumer behaviour organizational behaviour and salesman activity. Ways of doing business in Middle East countries would be difficult by western countries.
Doing Business in Saudi Arabia
Saudi Arabia is not the easiest place in the world fro Western enterprises to do business. On the one hand, the oil rich kingdom offers many opportunities for enterprising businesses. Western construction companies have long played a role in building infrastructure in the kingdom. Western brand from Coca-cola, Nike, and McDonald’s to Body Shop. Next and Benetton have a significant presence.
Since 2000, the government has signalled that it is more open to foreign investment in certain sectors of the economy, although oil and gas extraction is still reserved for state-owned enterprises.
On the other hand, Saudi Arabia is a historically conservative country where a large segment of the population desires to preserve the religious values and ancient traditions of the region, and this can spill over into the business sector. The culture of the country has been shaped by Islam and Bedouin tradition. The source of law in Saudi Arabia is Islamic law (the Shari’ah), and religious edicts derived from this influence on everyday life. For example, stores and restaurants close at the five daily prayer times, and many restaurants, including Western ones such as McDonald’s, have separate dining areas for men and women. Women in Saudi Arabia are not allowed to drive a car, sail a boat, or fly a plane, or to appear outdoors with hair, wrists, or ankles exposed -something that Western companies need to keep in mind when doing business in the country or with Saudis elsewhere.
Culture solidarity has expressed itself in consumer boycotts of American products. Given the culture importance attached to status, Saudi executives will not react well if a foreign company sends a junior executive to transact business.
Loyalty to family and friends is a powerful force, and job security and advancement may be based on family and friendship ties, rather than, or in addition to, demonstrated technical or managerial competence. Westerns might construct this negatively as nepotism, but it reflects a nomadic culture where trust in family and tribe was placed above all else. Saudi executives’ will also consult with family and friends before making a business decision, and they may place more weight on their opinions than that of experts whom they do not know as well.
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Currently, some 6 million foreign nationals reside in Saudi Arabia. These expatriates, who are primarily from other Muslim nations, undertake many of the menial occupations that Saudis disdain. Although oil revenues have mad this social stratification possible, the Saudi government sees it as a potential long-term problem -almost 90 percent of all private-sector jobs in Saudi Arabia are filled by foreign nationals -and has launched a program of “Sudiazation.”
Saudi society is starting to change in other important ways. Slowly the rights of Saudi women are being expanded. In 1964 Saudi girls were not allowed to got school; today 55 percent of university students in the kingdom are women. In 2004, Saudi women were granted the right to hold commercial business licences. A significant advance considering the women held some $25 billion in deposits in Saudi Banks and had little opportunity to use them. As Saudi society evolves, woman may come to play a greater role in business. Charles W.L Hill (2007)
Ethical issues in international business
Many of the ethical and dilemmas in international business are rooted in the fact that political systems, law economic development, and culture very significantly from nation to nation. In the international business setting, the most common ethical issues can be employment practices, human rights, environmental regulations, corruption, and the moral obligation of multinational corporations. Charles W.L Hill (2007)
Technological factor can have important effects on the decisions taken by international business. Around 80% of technological change has been process innovation. Wall and Rees (2007). One important issue to governments, firms labour representatives indeed society as a whole has been whether such process innovations have generally resulted in job losses.
Market place is changing radically as result of advancement in technology. Technological environment may be the most dramatic force in changing the working style and destiny of the firms. Technology is changing rapidly and every new technology replaces and older one companies which fail to anticipate and keep up the with technological change find their products outdated soon. Firms must track technological trends and determine that whether their products are fulfilling the customer demands still or not. Kotler (1999)
Terrorism impact on international business
Terrorism increasingly poses risks to the international activities of the firm. It involves the threat or use of violence to attain a political goal or communicate a political message by intimidating organizations and the public. Terrorism has become more destructive and more salient in recent years. However, little is known about how international firms respond to the effects or threat of terrorism.
Terrorism can be defined as the systematic threat or use of violence, often across national borders, to attain a political goal or communicate a political message through fear, coercion, or intimidation of non-combatant persons or the general public Alexander et al (1979).
Terrorism’s Direct and Indirect Effects
Terrorism poses both direct and indirect threats to the operations of the firm. Direct effects comprise the immediate business consequences of terrorism, as experienced by individual firms. For example, the bond-trading company Cantor Fitzgerald was destroyed and lost 658 of its 960 employees in the 9/11/01 attacks (“9/11”). While the harm is clearly tragic for individually affected people and firms, in terms of the U.S. and world economy, the direct effects of even the 9/11 attack were relatively small.
In terms of the impact on business, indirect effects are the most important outcome of terrorism. These include declines in consumer demand; unpredictable shifts or interruptions in value and supply chains; new policies, regulations and laws; as well as harmful macroeconomic phenomena and deteriorating international relations that affect trade. It is these indirect effects that pose the greatest potential threat to the activities of countless firms. Declines in consumer demand result from the fear and panic that that ensue following terrorist acts. Unable to predict future events, consumers may delay or discontinue purchases. Industrial demand is derived from retail consumer demand. A widespread psychological response of individuals, therefore, may trigger a decline in demand for industrial goods. Fear may also impact the behaviour and reactions of managers. Firms experience reduced revenues from falling consumer demand and may attempt to recoup decreasing sales by reducing prices or via increased advertising and other communications activities, all of which engender reduced revenues or unplanned expenses. Zinkota, Knight and Liesch (2003)
Using a combination of above writers and as well as a PEST analysis will allow an organization to determine the best offensive and defensive strategies in order to enter, survive and prosper in new markets while minimizing the threat of rivals and attacks.
Alan M. Rugmen (2009) “International Business” (5th edit), p 7, London, Pearson Education Limited
Alexander, Yonah et al (1979) “Terrorism: Theory and Practice”. Boulder, CO, West view Press
Campbell, D and Carig T, (2005), (2nd edition) “Organization and the Business Environment”, Oxford, Butter worth, Heinemann
Charles W.L Hill (2007) International business competing in global marketplace, (6thedit), P 44, 89, 126-127 McGraw-hill New York
Janet Morusion (2009), “International Business challenges in a changing world” P 158 Hamparshire, UK Palgrave Macmillan
Kotler (1999) (2nd edition) “Principles of marketing”, Prentice Hall, London
Stuart Wall and Bronwen Rees (2007), (2nd edition), International Business, P 136, 144-145, 163-164 London Prentice Hall
Wild Wild Han (2008), (4th Edit) P 50, 108, 122 “International Business the challenges of globalization”, USA, Pecron Prentice Hall).
Zinkota Micheal, Gary Kinght, and Peter Liesch (2003), Terrorisom and international business, Conceptions foundation “in Terrorism and the international business Environment, The Sociey Business, Noxus Ed, Gabriele Suder, Chelternham, England Elgar
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