Critical Forces of Business Environment- Ch 2

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Chapter- 2Chapter- 2

Critical Forces of Business Critical Forces of Business EnvironmentEnvironment

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Components of International Business EnvironmentComponents of International Business Environment

Internal Environment

Micro Environment

Domestic Environment

Foreign Environment

Global Environment

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External EnvironmentExternal Environment

Micro EnvironmentMicro Environment Macro EnvironmentMacro Environment Micro Environment: Actors in the firm’s Micro Environment: Actors in the firm’s

immediateimmediate environment. environment. Influence the firm’s decisions & Influence the firm’s decisions &

operations directly.operations directly. Do not affect all the firms in an Do not affect all the firms in an

industry in the industry in the same waysame way.. Macro environment: Wider Macro environment: Wider societalsocietal

forces, which affect the firm and also forces, which affect the firm and also the players in the firm’s micro the players in the firm’s micro environment.environment.

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Micro EnvironmentMicro Environment

Actors in the firm’s immediate environment.Actors in the firm’s immediate environment.

Suppliers

Marketing Intermediari

es

Financial Institutions

Competitors

General Public

Customers

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Macro EnvironmentMacro Environment

Business

Economic Env

National Global

Non Economic Env

Political

Socio-cultural

Demographic

Technological

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Macro EnvironmentMacro Environment Forces operate at Forces operate at homehome (domestic) country, (domestic) country,

hosthost (foreign) country and (foreign) country and globalglobal levels. levels. Comprises of economic and non-economic Comprises of economic and non-economic

environmental forces.environmental forces. Economic environmentEconomic environment of business both of business both

national and global is of strategic national and global is of strategic importance.importance.

1.1. A firm is an A firm is an economiceconomic unit. unit.

2.2. Business activities are Business activities are economiceconomic activities.activities.

3.3. Business decision making are Business decision making are economiceconomic in in nature.nature.

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Major Critical Economic ForcesMajor Critical Economic Forces

Economic indicators (GNI, GNI PPP, Economic indicators (GNI, GNI PPP, GDP, GNI Per Capita, GDP Growth Rate GDP, GNI Per Capita, GDP Growth Rate etc) etc)

Economic systemEconomic system Economic plans and policies- Monetary, Economic plans and policies- Monetary,

fiscal, trade and commerce.fiscal, trade and commerce. Economic problems and prospectsEconomic problems and prospects

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Country Country GNIGNI

($ billions)($ billions)GNI, (PPP)GNI, (PPP)

($ billions)($ billions)IndiaIndia

PakistanPakistan

BangladeshBangladesh

Sri LankaSri Lanka

NepalNepal

BhutanBhutan

MaldivesMaldives

909.1909.1

126.7126.7

70.570.5

26.026.0

8.88.8

928 (mil)928 (mil)

903 (mil)903 (mil)

2726.2 (80.0%)2726.2 (80.0%)

382.8 (11.2%)382.8 (11.2%)

191.9 (5.6%)191.9 (5.6%)

74.2 (2.2%)74.2 (2.2%)

27.8 (0.8%)27.8 (0.8%)

2.6 (0.07%)2.6 (0.07%)

1.4 (0.04%)1.4 (0.04%)

SAARC TotalSAARC Total 1142.91142.9 3406.9 (5.7%)3406.9 (5.7%)

WorldWorld 48,694.148,694.1 60,209.9 60,209.9 (100.0%)(100.0%)

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

GNI and GNI, PPP for SAARC Nations, 2006GNI and GNI, PPP for SAARC Nations, 2006

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SAARC nations SAARC nations togethertogether represents represents 5.7%5.7% of the world GNI, PPP. of the world GNI, PPP.

Among the seven nations, Among the seven nations, IndiaIndia concentrates concentrates 80%80% of GNI, PPP of the of GNI, PPP of the total SAARC nations, which is total SAARC nations, which is highesthighest..

ThreeThree countries: Nepal, Bhutan and countries: Nepal, Bhutan and Maldives have Maldives have lessless thanthan 1%1% of gross of gross income (PPP) to total SAARC GNI, PPP.income (PPP) to total SAARC GNI, PPP.

Among the SAARC nations, while Among the SAARC nations, while IndiaIndia represents the represents the biggestbiggest in in sizesize and and economic economic activityactivity, the case of , the case of MaldivesMaldives is the is the smallestsmallest..

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($ billions)($ billions)GNI, (PPP)GNI, (PPP)

($ billions)($ billions)

SingaporeSingapore

PhilippinesPhilippines

MalaysiaMalaysia

BruneiBrunei

VietnamVietnam

CambodiaCambodia

Lao PDRLao PDR

MyanmarMyanmar

ThailandThailand

IndonesiaIndonesia

128.8128.8

120.2120.2

146.8146.8

10.310.3

58.558.5

7.07.0

2.92.9

--

193.7193.7

315.8315.8

194.1 (8.6%)194.1 (8.6%)

296.2 (13.1%)296.2 (13.1%)

317.4 (14.0%)317.4 (14.0%)

19.1 (0.8%)19.1 (0.8%)

194.4 (8.6%)194.4 (8.6%)

22.1 (1.0%)22.1 (1.0%)

10.0 (0.4%)10.0 (0.4%)

--

472.2 (20.9%)472.2 (20.9%)

737.2 (32.6%)737.2 (32.6%)

ASEAN TotalASEAN Total 984.0984.0 2262.7 (3.7%)2262.7 (3.7%)

WorldWorld 48,694.148,694.1 60,209.9 (100.0%)60,209.9 (100.0%)


GNI and GNI, PPP for Countries of ASEAN, 2006GNI and GNI, PPP for Countries of ASEAN, 2006

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ASEAN ASEAN totaltotal represents represents 3.7%3.7% of the world of the world GNI, PPP.GNI, PPP.

Among the ten countries, the share of Among the ten countries, the share of IndonesiaIndonesia to total ASEAN GNI, PPP is to total ASEAN GNI, PPP is about about 33%33%, which is the , which is the highesthighest..

BruneiBrunei though is a high income country, though is a high income country, represents represents lessless thanthan 1%1% of its national of its national income to GNI, PPP of ASEAN.income to GNI, PPP of ASEAN.

Among the ASEAN, Among the ASEAN, LaoLao PDRPDR size of size of economic activity is economic activity is limitedlimited and and smallestsmallest..

Next to Indonesia, Next to Indonesia, ThailandThailand represents represents about about 21%21% share of GNI, PPP of ASEAN. share of GNI, PPP of ASEAN.

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Country Country GDPGDP

($ billions)($ billions)GDP GrowthGDP Growth

(annual %)(annual %)EconomyEconomy

TypeType

IndiaIndia

PakistanPakistan


Sri LankaSri Lanka

NepalNepal

BhutanBhutan

MaldivesMaldives

911.8911.8

126.8126.8

61.961.9

27.027.0

8.98.9

0.90.9

0.90.9

9.29.2

6.96.9

6.66.6

7.47.4

2.82.8

8.58.5

23.523.5

LILI

LILI

LILI

LMILMI

LILI

LMILMI

LMILMI

WorldWorld 48,461.948,461.9 3.83.8 --

Note:Note: HI – High Income, UMI – Upper Middle Income, LMI – HI – High Income, UMI – Upper Middle Income, LMI – Lower Lower Middle Income, LI – Low Income.Middle Income, LI – Low Income.


GDP and GDP Growth Rates for SAARC GDP and GDP Growth Rates for SAARC Nations, 2006Nations, 2006

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Except Except NepalNepal, all the six SAARC nations , all the six SAARC nations have their economic growth rates have their economic growth rates aboveabove the rate of growth of the the rate of growth of the worldworld as a whole. as a whole.

Except Maldives, among the six SAARC Except Maldives, among the six SAARC nations, nations, IndiaIndia has the has the highesthighest growth rate growth rate in 2006 approaching to in 2006 approaching to 10%10%..

MaldivesMaldives has the has the highesthighest growth rate of growth rate of double digit approached to double digit approached to 24%24%..

Keeping its size and growth, Keeping its size and growth, IndiaIndia is is expected to be one of the expected to be one of the leadingleading economies and economies and hothot marketsmarkets in the world in in the world in future.future.

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Country Country GDPGDP

($ billions)($ billions)GDP GrowthGDP Growth

(annual %)(annual %)EconomyEconomy

TypeType

SingaporeSingapore


MalaysiaMalaysia

BruneiBrunei

VietnamVietnam

CambodiaCambodia

Lao PDRLao PDR

MyanmarMyanmar

ThailandThailand

IndonesiaIndonesia

132.2132.2

117.6117.6

150.7150.7

11.611.6

61.061.0

7.37.3

3.43.4

--

206.3206.3

364.8364.8

7.97.9

5.45.4

5.95.9

5.15.1

8.28.2

10.810.8

7.67.6

5.05.0

5.05.0

5.55.5

HIHI

LMILMI

UMIUMI

HIHI

LILI

LILI

LILI

LILI

LMILMI

LMILMI

WorldWorld 48,461.948,461.9 3.83.8 --



GDP and GDP Growth Rates for Countries of ASEAN, 2006GDP and GDP Growth Rates for Countries of ASEAN, 2006

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Among the ASEAN, the growth rate of Among the ASEAN, the growth rate of CambodiaCambodia is the is the highesthighest (10.8%)(10.8%)..

Despite Despite Cambodia’sCambodia’s limited market limited market size, its high growth represents size, its high growth represents futurefuture expansionexpansion of of marketmarket and markets for and markets for the products of international business.the products of international business.

AllAll the economies of ASEAN have their the economies of ASEAN have their economic growth rates economic growth rates aboveabove the the worldworld economic growth rate. economic growth rate.

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Per Capita Per Capita ($)($)

GNI Per Capita,GNI Per Capita,

PPP ($)PPP ($)EconomyEconomy

TypeType

IndiaIndia

PakistanPakistan


Sri LankaSri Lanka

NepalNepal

BhutanBhutan

MaldivesMaldives

820820

800800

450450

1,3101,310

320320

1,4301,430

3,0103,010

2,4602,460

2,4102,410

1,2301,230

3,7303,730

1,0101,010

4,0004,000

4,7404,740

LILI

LILI

LILI

LMILMI

LILI

LMILMI

LMILMI

WorldWorld 7,4487,448 9,2099,209 --



GNI Per Capita and GNI PC, PPP for SAARC GNI Per Capita and GNI PC, PPP for SAARC Nations, 2006Nations, 2006

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Among SAARC nations, Among SAARC nations, NepalNepal shows the shows the lowestlowest GNI PC and PPP. GNI PC and PPP.

FourFour SAARC nations, India, Pakistan, SAARC nations, India, Pakistan, Bangladesh, Nepal are the Bangladesh, Nepal are the lowlow incomeincome countries, as their GNI PC is countries, as their GNI PC is $ 905$ 905 oror lessless..

Countries, such as Luxembourg, US, Countries, such as Luxembourg, US, Norway etc. are among the Norway etc. are among the richestrichest, while , while large economy like large economy like IndiaIndia is is poorpoor..

Despite its large number of poor people, Despite its large number of poor people, India has a fairly India has a fairly wealthywealthy middlemiddle class class around 300-400 million people which around 300-400 million people which shows its shows its attractivenessattractiveness..

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Per Capita Per Capita ($)($)

GNI Per CapitaGNI Per Capita

PPP ($)PPP ($)EconomyEconomy

TypeType

SingaporeSingapore


MalaysiaMalaysia

BruneiBrunei

VietnamVietnam

CambodiaCambodia

Lao PDRLao PDR

MyanmarMyanmar

ThailandThailand

IndonesiaIndonesia

28,73028,730

1,3901,390

5,6205,620

26,93026,930

700700

490490

500500

--

3,0503,050

1,4201,420

43,30043,300

3,4303,430

12,16012,160

49,90049,900

2,3102,310

1,5501,550

1,7401,740

--

7,4407,440

3,3103,310

HIHI

LMILMI

UMIUMI

HIHI

LILI

LILI

LILI

LILI

LMILMI

LMILMI

WorldWorld 7,4487,448 9,2099,209 --Note:Note: HI – High Income, UMI – Upper Middle Income, LMI – HI – High Income, UMI – Upper Middle Income, LMI – Lower Lower

Middle Income, LI – Low Income.Middle Income, LI – Low Income.


GNI Per Capita and GNI PC, PPP for Countries of ASEAN, GNI Per Capita and GNI PC, PPP for Countries of ASEAN, 20062006

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Among ten nations, Vietnam, Cambodia, Among ten nations, Vietnam, Cambodia, Lao PDR and Myanmar are the Lao PDR and Myanmar are the lowlow incomeincome countriescountries..

SingaporeSingapore and and BruneiBrunei are the are the highhigh income countries as their GNI PC is above income countries as their GNI PC is above $11,116$11,116..

MalaysiaMalaysia (upper middle income) now (upper middle income) now presents one of the presents one of the attractiveattractive markets in markets in the region.the region.

CambodiaCambodia though a least developed though a least developed country (country (LDCLDC) provides an ) provides an attractiveattractive destination for foreign investors due to its destination for foreign investors due to its economiceconomic growthgrowth..

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As estimated (Goldman, 2003) As estimated (Goldman, 2003) ChinaChina economy will economy will overtakeovertake JapanJapan by 2015 by 2015 and and USUS by 2041. by 2041.

India’sIndia’s economy would be economy would be largerlarger than than FranceFrance in 2020 and in 2020 and JapanJapan 2032. 2032.

By 2050, By 2050, ChinaChina will be the will be the largestlargest economy in the world followed by economy in the world followed by USUS and and IndiaIndia..

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Domestic EnvironmentDomestic Environment

All the All the uncontrollableuncontrollable forces forces originating in the originating in the homehome country country that surrounds and influence the that surrounds and influence the life and development of the firm.life and development of the firm.

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Domestic EnvironmentDomestic Environment

Competitive Structure Economic Competitive Structure Economic climate climate

Political & Legal forces Political & Legal forces

Uncontrollable Uncontrollable

IMPACT ?IMPACT ?

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Domestic firms venture into Domestic firms venture into international businessinternational business

Lack of domestic demand and/orLack of domestic demand and/or

Intense CompetitionIntense Competition

Export Promotion Measures and/orExport Promotion Measures and/or

Economic IncentivesEconomic Incentives

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Foreign EnvironmentForeign Environment

Geographical factorsGeographical factorsEconomic conditionsEconomic conditionsSocio-Cultural environmentSocio-Cultural environmentPolitical environmentPolitical environmentTechnological environmentTechnological environmentLegal forcesLegal forcesUncontrollable forces originating outside Uncontrollable forces originating outside

the the home country that surround and influence home country that surround and influence

the firm.the firm.

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Global EnvironmentGlobal Environment World Economic Conditions World Economic Conditions International Financial SystemsInternational Financial Systems Working of WTO, IMF, WB..Working of WTO, IMF, WB.. International Agreements & TreatiesInternational Agreements & Treaties Regional Economic GroupingsRegional Economic Groupings

European Union (EU)European Union (EU)North American Free Trade Association (NAFTA)North American Free Trade Association (NAFTA)Association of South East Asian Nations ( ASEAN)Association of South East Asian Nations ( ASEAN)

Association of South Asian Regional Cooperation Association of South Asian Regional Cooperation (SAARC)(SAARC)

Exerts influenceExerts influence over domestic as well over domestic as well as foreign Countries.as foreign Countries.

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Non-Economic Non-Economic

EnvironmentEnvironment

Political Socio-Cultural Legal

Technological Geographical

Ecological

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PoliticalPolitical

Form of Government Political Party System

Political Ideology Role of Government

Political Stability

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Socio-CulturalSocio-Cultural

LanguageLanguage

Attitude & valuesAttitude & values

EducationEducation

Religions & Religions & SuperstitionSuperstition

Social groups & Social groups & OrganizationsOrganizations

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Environmental forces and Environmental forces and Decisions of a FirmDecisions of a Firm

What should be the scale of What should be the scale of productionproduction?? Should the firm employ Should the firm employ laborlabor intensive intensive

or or capitalcapital intensive techniques? intensive techniques? How to How to financefinance firm's foreign firm's foreign

operations?operations? How much to How much to repatriaterepatriate?? Should the firm hire Should the firm hire locallocal persons or persons or

employ employ foreignforeign nationals? nationals? What should be their What should be their compensationcompensation

package? package?

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Critical Forces of Business Environment- Ch 2