Chapter Four

1. Chapter Four National Differences Facing Operations

2. Chapter Objectives • To appreciate that companies face vastly different operating environments when they operate abroad • To realize the importance of analyzing countries’ political and economic strategies and performance • To sense how different political and economic systems affect the conduct of business • To recognize how countries’ demographic differences affect business environments • To comprehend some of the major cultural differences among countries that impact international business

3. Introduction • Once a company leaves its home country, it enters a vastly different operating environment • Generally, managers operate more easily in countries similar to their homes • Three dimensions of countries’ environments to be explored include: • Legal-political • Economic • Human

4. Introduction

5. Politics and Economics • Country analysis: examines the political and economic strategy and performance of the nation state • Country analysis involves three steps: • Step 1: identify the strategy, context, and performance of the country • Involves looking at goals and policies • Context refers to the political, institutional, ideological, physical, and international environments in which a firm does business • Performance refers to indicators of economic activity • Step 2: evaluate the performance to explain what is happening in the country at present and why • International monetary fund • Step 3: generate scenarios for future performance • Forecasting where a country may head in the future is critical

6. Politics and Economics • Three broad areas of the political environment: • Political system • Democratic systems • Involves wide participation by citizens in the decision-making process • Can be liberal or conservative but rarely reach extremes such as reactionary or radical • Nondemocratic systems – totalitarian systems • A single party, individual, or group of individuals monopolizes political power • Decision making is restricted to a few individuals • Political stability • Democratic regimes tend to be relatively more stable than totalitarian regimes

7. Politics and Economics • Role of government in business • Individualistic governments: believe in minimal intervention • Communitarian regimes: there is a focus on prestige, authority, and hierarchy • Whether a country is communitarian or individualistic, it can try to bring business activity into line with community needs through three principal methods: • Promotion of marketplace competition • Varies from country to country • Regulation of the marketplace • May have to do with whether or not a country allows foreign investment to come in and whether or not it promotes foreign trade • Establishing a partnership with business • The relationship between government and business varies around the world

8. Politics and Economics

9. Politics and Economics • The Legal Environment • Legal systems differ in terms of their nature: • Common law: based on tradition, precedent, and usage • Civil law: based on a detailed set of written laws • Theocratic law: based on religious precepts • National laws affect business within a country or business among countries • Laws exist that govern cross-border activities

10. Politics and Economics • The Economic Environment • Traditional factors of production: land, capital, and technology • A company conducting business overseas must determine the key factors of production in that country and how it can take advantage of them • Network of reliable suppliers • Solid strategy, structure, and rivalry in order for firms to create, organize, and manage effectively • Size of demand is typically measured in gross national product (GNP) which is the market value of final goods and services newly produced by domestic factors of production • An alternative to GNP is gross domestic product (GDP) which is the value of production that takes place within a nation’s borders without regard to whether production is done by domestic or foreign factors • Another measure of market size is GNP or GDP per capita • Important because it gives an idea of the wealth and potential purchasing power of individuals in a country • Developing countries or emerging economies

11. Politics and Economics

12. Politics and Economics • General types of national economies: • Market economy: rest on the idea that consumers, by virtue of what they do and do not buy, determine the relationships among price, quantity, supply, and demand • Consumer sovereignty: consumers influence the allocation of resources through their demand for products • This is the cornerstone of a market economy • Centrally planned economy: the government owns and controls all resources • Historically these were found in communist countries • Mixed economy: virtually all economies have varying degrees of private and public ownership of production factors

13. Politics and Economics • A good example of the interplay of political and economic forces and their impact on corporate practices is the Asian financial crisis that began in 1997 • Two theories for the cause of this crisis: • Too much government influence and control • Bad private sector decisions • The Asian financial crisis teaches that: • An economic crisis can occur quickly and affect companies’ operations very negatively • Economic conditions in one country can impact those of another country • To be successful in this global economy, it is important to understand political and economic forces

14. People of the World • Current estimates suggest there are more than 6.5 billion people living in more than 200 different countries

15. People of the World • Demography: the statistical analysis of the properties of a particular population • Population: helps define a company’s market potential

16. People of the World • Another way to examine the population of a country is through its agedistribution • Can indicate the potential market for youth-oriented versus elderly-oriented products • Indicates how many people may be available in the workforce • Population growth: defined as a percent per year of the total population • High-income countries’ population growth is less than 1% • Developing countries’ population growth typically exceeds 1% • There are a number of ways to measure the health of a society, which is important in terms of a good workforce as well as a consuming population

17. People of the World • Culture: influences where businesses decide to open operations, how people are managed, and the products sold • Culture shock: anxiety triggered by the challenge of learning and coping with a new culture • Overt cultural differences: the differences immediately noticed when visiting a foreign country or in contact with a foreign visitor • Most nations help businesspeople prepare for overseas business culture • There are many subtle cultural differences that are difficult to identify and cope with when dealing with foreign businesspeople • Roles and relationships between people in the workplace • Nature of friendships • Concepts of time and space • Approaches to problem solving • An understanding of subtle cultural differences often determines success or failure in global business matters

18. People of the World • A psychological view of culture assumes that culture is made up of specific learned norms within a community that are based on fundamental values • Understanding a particular culture demands one to understand the fundamental values that it endorses • Seven principal types of cultural values: • Power distance: describes the relationship between more powerful and less powerful members of a group • Individualism versus collectivism: • Masculinity versus femininity • Uncertainty avoidance: deals with a society’s tolerance for uncertainty and ambiguity • Long-term versus short-term orientation • Monochronic versus polychronic • Idealistic versus pragmatic

19. People of the World • Communication is a key dimension of culture • Overseas endeavors face conversational challenges • Document translation presents additional challenges • The silent language of business includes nonverbal issues such as color association, sense of appropriate distance, time and status cues, and body language • One of the best approaches to managing cultural challenges in global markets is to observe the happenings around you, emulate well-regarded people, and respect the other cultures