International Business

Environment

Ms. Kavita ShettyFaculty

DYPDBM

The Company’s Microenvironment

Forces close to the company that affect its ability to serve its customers - the company, market channel firms, customer

markets, competitors and public, that combine to make up the firm’s

value delivery system.

Taking the views of top management, finance, research

and development (R&D), purchasing, manufacturing and

accounting into consideration

The Company

* Entities providing resources needed by the company to

produce goods and services

* Needs to watch supply availability, shortage or delays, labor

strikes, price trends etc.

Suppliers

Firms that help the company to promote, sell and distribute its goods to final buyer

Resellers

Physical distribution firms

Marketing-service agencies

Financial intermediaries

Marketing Intermediaries

* Study the changing trends in the market

* Create products as per customer requirements and satisfy their needs and wants according to their purchasing power

Customers

* Provide greater customer value and satisfaction than competitors. * To gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers

Competitors

* Brand Competition* Industry Competition* Form Competition / Substitute

Competition * Generic Competition

Forms of Competition

Represents any group that has an actual or potentialinterest in or impact on an organization’s ability to achieve its objectives.

Publics

General Public – the general population of the country who carry

an image of the company that affects their buying decisions

Local Public – represent the local population

For Example: Neighborhood

residents & community organizations

Internal Public – people associated with the

company’s internallyFor Example: Workers, Managers, Volunteers

and the Board of Directors

Consists of all the conditions and forces that affect an organization's strategic options and define its

competitive situation

Operating Environment

Industry Environme

nt

Remote Environme

nt

The three interactive segments of the external environment

External Environment

The Company’s Macroenvironment

Forces close to the company that affect its ability to serve its customers - the company, market channel firms, customer

markets, competitors and public, that combine to make up the firm’s

value delivery system.

Environmental Variables

Internal EnvironmentStructureCulture

Resources

Task EnvironmentSocio-Cultural

ForcesEconomic

Forces

Political-legal Forces

Technological Forces

Suppliers

Employees

Labor Unions

Competitors

Trade Associations

Communities

Creditors

Customers

Social Interest Groups

Government

Shareholders

Contd…

Political Environment

Economic Environment

Social Environment

Technological Environment

• Factors related to materials and machines used for manufacturing goods and services • Cost of Technology

• Rate of Change of Technology • Receptivity to new Technology

• Technological Innovations

Industry Level Analysis

Porter’s Industry Analysis / Five Forces Model

INDUSTRY COMPETITORS

RIVALRY AMONG EXISTING FIRMS

POTENTIAL ENTRANTS

SUPPLIERS

BUYERS

SUBSTITUTES

Bargaining Power of Suppliers

Bargaining Power of Powers

Threat of Substitute Products

or Services

Threats from New Entrants

Barriers to Entry

• Economies of Scale

• Product Differentiation

• Capital requirements

• Cost disadvantages independent of size

• Access to Distribution Channels

• Government Policies

Threat of New Entrants

• Number and size

• Exit barriers to the loyalty of the old players to the industry despite low returns

Intensity of Rivals

Buyers are powerful under the following circumstances

• When the suppliers are many and the buyers are a few and large

• When the buyers purchase in large quantities

• When the supplier’s industry depends on the buyers for a large percentage of its total orders

• When the buyers can switch orders between supply companies at a low cost, thereby playing companies off against each other to force down prices

The Bargaining Power of Buyers

• When it is economically feasible for the buyers to purchase the input from several companies at a time

• When the buyers can use the threat to provide for their own needs through vertical integration as a device for forcing down prices

• When the product offered has few substitutes and is important to the purchasing company or buyer

• When no single industry is a major customer for the suppliers

• When products in the industry are differentiated to such an extent that they are not easily substitutable and its costly for a buyer to switch from one supplier to another

• To raise prices, the supplier can use the threat of vertically integrating forward into the industry and competing directly with buying company

The Bargaining Power of Suppliers

Example :

Intel – world’s largest manufacturer of microprocessors – manufacturers of personal computers are dependent on the single largest supplier of computer chips

Threat of Substitute Products

Coffee – Tea – Soft drinks

• The buyer companies cannot use the threat of vertically integrating backward and supplying their own needs as a means to reduce input prices

Elements of a Game:

• Players: rival companies

• Actions: choices available

• Information

• Strategies: guidelines that tell the decision maker which action to choose at each point of the game

• Outcomes: results such as price wars

• Payoffs : potential benefits

• Equilibria: stable result which need not always be beneficial

Game Theory

Analyzing the game through the other player’s eyes

Assessing another Player’s likely behavior

• Fishbowl

• Red team / blue team

• Future mapping

Techniques

Two variables in addition to five factors

• Import Competition

• Multimarket contact

Concept of Complementarity

Risk that politics in the host country generate in a way which makes it

difficult for the organization to profitably

carry on its business

Political Risks

Threats generated byPolitical Risks

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Unwelcome Regulations

Mandatory local equity and management

Profit Re-investment

Limitation on Employment

Price Controls

Import Restrictions

Restriction of Intellectual Property Rights

Complex and Costly Incorporation norms

Weak Law Enforcement

Corrupt Bureaucracies and Justice Systems

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