1. ENVIRONMENTAL EFFECTS
o Culture: system of values, norms that are shared among a group of people and that taken together constitute a design for living. (or)
o Complex whole which includes knowledge, belief, art, law, custom & other capabilities acquired by man as a member of society.
o Values-abstract ideas about what a group believes to be good, right, desirable/shared assumptions about how things ought to be.
o Norms-social rules & guidelines that prescribe appropriate behavior in particular situations.
o Society-group of people who share a common set of values & norms .
2. Values & norms
o Values-* form the bedrock of culture
o *Provide context with in which a society’s norms are established & justified
o *include a society’s attitudes toward such concepts as individual freedom, justice, democracy, truth, honesty, loyalty, love, social obligations, collective responsibility, role of woman, sex & marriage.
3. Norms
o Norms-social rules that govern people’s actions towards one another.
o 2 major categories-1.folkways-routine conventions of every day life, actions of little moral significance.
o Ex-dress code, social manners, eating with correct utensils, neighbor behavior, attitude towards time.
o Mores-norms that are seen as central to the functioning of society & to its social life.
o Ex-act against thefts, adultery .
4. Determinants of culture
o Religion
o Social structure Political
o Culture
o Norms &
o Value systems
o Language Economic
o Education
5. 1.Social structure
o Refers to basic social organization
o 2 important dimensions
o *degree to which the basic unit of social organization is individual as opposed to group
o *degree to which a society is stratified into classes/castes.
o Individuals & groups-group is an association of 2/more individuals who have a shared sense of identity & who interact with each other in structured ways on the basis of common set of expectations about each other behavior.
o *individuals are the basic building blocks of social organization.
6. Social stratification (categories)
o Social strata-typically defined on the basis of characteristics such as family income, background, occupation.
o Social mobility-refers to the extent to which individuals can move out of the strata into which they are born.
o -varies from society to society
o -the most rigid system of stratification is caste system.
o Class system-less rigid form of social stratification in which social mobility is possible.
o -is a form of open stratification in which the position a person has by birth can be changed through his/her own achievements
o Significance-class consciousness-refers to a condition where people tend to perceive themselves in terms of their class background & this shapes their relationships with members of other classes .
7. 2.Religious & ethical systems
o Religion-system of shared beliefs & rituals that are concerned with the realm of sacred.
o Ethical systems-refer to a set of moral principles/values that are used to guide & shape behavior & product of religions.
o 4 dominant religions-Christianity, Islam, Hinduism, Buddhism
8. Religions
o Christianity -wider practiced religion in the world.
o -roman catholic church (Catholicism)
o -orthodox church (Protestantism)
o *by Weber-protestants believed in hard work & wealth creation & absence of interest in worldly pleasures.
9. Islam
o -2 nd largest, dates back to 610 AD.
o Characteristics:
o -respect to parents -not committing adultery
o -being generous -respecting rights of others
o -avoid killing –equal dealing with other
o -being of pure heart & mind –being humble
o -safe guarding possessions of orphans
o Islamic fundamentalism
o -modernization in Islam in rich urban societies
o -impoverished urban & rural societies
o Ex-killing of foreign tourist , WTO, Pentagon attacks
o Economic implications of Islam-free enterprise & earning of profits
o -interest was a sin
10. Hinduism
o - believes in dharma, reincarnation, rebirth, karma, nirvana
o Economic implications of Hinduism- Weber
o -individuals should not be judge by material achievements but by spiritual achievements
o -supports caste system
11. Buddhism
o -6 th century by Siddhartha Gauthama
o -nirvana, spiritual enlightment
o -life is comprised of suffering
o -eight fold path: right seeing, thinking, speech, action, living, effort, meditation, mindfulness
o -no support for caste system
o -believe in after life & spiritual achievement
12. Confucianism
o -5 th century by Confucius, china, Korea, Japan
o -teaches the importance of attaining personal salvation through right action
o Economic implications of Confucianism
o -loyalty to one’s superiors is regarded as sacred duty, so it binds the employees to the heads of their organization and reduces the conflict between management & labor
13. 3.Language
o Both spoken & unspoken means of communication
o Spoken language-enable people to communicate with each other
o -direct the attention of its members to certain features of the world
o -English common in IB
14. 4.Education
o -Formal education plays a key role in society
o -medium through which individuals learn many of language, conceptual & mathematical skills
o -high skilled individuals are an asset for country.
15. 5.Culture & work place
o 4 dimensions
o -power distance: people are unequal in physical & intellectual capabilities
o -individualism vs. collectivism
o -uncertainty avoidance
o -masculinity vs. femininity
o Cultural change-changes in value systems can be slow & painful for a society
16. Implications for business
o 1.Cross cultural literacy-ethnocentrism, polycentrism, regiocentrism, geocentrism
o 2.Culture & competitive advantage
o 3.Culture & business ethics
o -respect for core human values
o -respect for local tradition
o -respect for freedom
17. Cultural awareness
o 1.Problem areas that hinder managers are
o -subconscious reactions to circumstances
o -the assumption that all societal subgroups are similar
o 2.A company’s need for cultural knowledge increases as
o -its number of foreign functions increases
o -the number of countries of operations increases
o -its moves from external to internal handling of operations
18. Identification & dynamics of culture
o The nation as a point of reference
o Cultural formation & dynamics
o * choice/imposition
o * contact with other cultures
o Language as a cultural stabilizer
o Religion as a cultural stabilizer
19. Social & cultural
o Culture facilitates communication
o Cultural attitude & IB
o Culture & thinking process
o Cross cultural communication process & negotiations
o Cultural universals
o Communication through languages
o Time & culture (appointment)
o Space & culture
20. Social & cultural
o Culture & agreement
o Culture of friendship
o Culture & superstition
o Culture & color
o Culture & gifts
o Culture prescriptive-the kinds of behavior considered acceptable in the society
o EX-consumption of wine
o -US acceptable
o -India socially not acceptable
o -Saudi socially & legally unacceptable
21. Behavioral practices affecting business
o 1.Social stratification systems -group affiliation
o *Performance orientation
o *Gender based groups
o *Age based groups
o *Family based groups
o *Occupation
o 2.Motivation
o *Materialism & leisure
o *Expectation of success & reward
o * Assertiveness
o * Need hierarchy (recognition, attention, appreciation, maslow’s hierarchy)
22. Behavioral practices affecting business
o 3.Relationship preferences
o *Power distance
o *Individualism vs. collectivism
o 4.Risk taking behavior
o *Uncertainty avoidance
o *Trust
o *Future orientation
o *Fatalism
23. Behavioral practices affecting business
o 5.Information & task processing
o *Perception of cues, obtaining information
o *Information processing
o -monochromic: people like to finish work one after one
o -polychromic: people concentrate on all tasks at one time
24. Strategies for dealing with cultural differences
o Making little/no adjustment
o Communication
o Silent language
o Culture shock (expatriate)
25. Company & Management orientations
o Polycentrism-control is decentralized
o Ethnocentrism-superiority
o Geocentrism
o Strategies for instituting change
o Value system -the more a change upsets important values, the more resistance it will encounter
o Cost benefit of change
o Economic cost
o Psychic cost
26. Strategies for instituting change
o Resistance to too much change
o Participation
o Reward sharing
o Opinion leaders
o Timing
o Learning abroad
27. Political environment
o Political process functions include
o *interest articulation-politicians, individuals, businesses, interest groups
o *policy making
o *interest aggregation
o *policy implementation & adjudication
28. Political environment
o a. Basic political ideologies
o b. Impact of ideological differences on national boundaries
o *a political spectrum
o *political rights & civil liberties
o *stability in democracy
o c. Impact of political system on management decisions
o *political risk
29. Political environment
o Types & causes of political risk
o *Opinions of political leadership
o *Civil disorder
o *External relations
o *Micro¯o political risks
o d. Government intervention in the economy
o *individualistic paradigm-minimal government intervention, democratic & economically free
o *communitarian paradigm-authoritative & prestigious government, defines needs & priorities
30. Formulating & implementing political strategies
o Identify the issue
o Define the political aspect of the issue
o Assess the potential political action of other companies & special interest groups
o Identify important institutions & key individuals
o Formulate strategies
o Determine the impact of implementation
o Select the most appropriate strategy & implement it
31. Political environment
o Collectivism & individualism
o Socialism
o *Communists *Social democrats
o Democracy & totalitarianism
o *Communist totalitarianism-dictatorship
o *Theocratic totalitarianism-by a party/group
o *Tribal totalitarianism
o *Rightwing totalitarianism-gives economic freedom but restricts political freedom
32. Legal environment
o Kinds of legal systems
o Common law-based on tradition, custom, usage & interpretation by courts Ex. US,UK
o Civil law-codified legal system, legal codes Ex. Germany, France, Japan
o Theocratic law-based on religious precepts Ex. Islamic countries
33. Legal environment
o Consumer safeguards-product liability issues
o Legal profession
o Legal issues in IB
o *national laws affect all local business activities
o *national laws affect cross border activities
o *international treaties, cross border transactions
34. Legal systems
o Property rights
o *public & private action
o Protection of intellectual property
o *patents *copyrights *trademarks
o Product safety & liability
o Contract law
35. Economic environment
o Key economic forces
o *general economic framework of a country
o *economic stability
o *existence & influence of capital markets
o *market size
o *availability of economic infrastructure
36. Economic environment
o An economic description of countries
o Factor/production conditions-HR, physical resources, knowledge resources, capital resources, infrastructure
o Demand conditions
o *composition of home demand (quality of demand)
o *size & growth of demand (quantity of demand)
o *internalization of demand
37. Economic environment
o Countries classified by income
o Gross national income (GNI)
o Gross national product (GDP)
o World bank:
o -5 closely associated institutions
o *IBRD (International bank for reconstruction & development)
o *IDC (International development association)
o *IFC (International finance corporation)
o *MIGA (Multilateral guarantee agency)
o *ICSID (International center for settlement of investment disputes)
38. Economic environment
o Countries classified by region
o East Asia & pacific
o Latin America & the Caribbean
o The Middle east & North Africa
o South Asia
o Sub-Sahara Africa
o Importance of regional groupings of countries
o Similar economic conditions
o Mirrors the way companies organize their firms geographically
39. Economic environment
o Countries classified by economic system- every government struggles for ownership & control of economy
o *Ownership-who own the resources engaged in economic activity
o -can be public sector, private sector/both
o *Control-whether resources are allocated & controlled by the public/private sector
40. Economic environment
o Factors that determine economic freedom
o Trade policy
o Fiscal burden of government
o Government intervention in the economy
o Monetary policy
o Capital flows & investment
o Banking & finance
o Wages & prices
o Property rights & regulation
o Black market activity
41. Economic environment
o State capitalism-Japan, Korea
o Market economy-private sector
o *consumer sovereignty
o Command economy-public sector
o Mixed economy
o * Inflation -condition in which prices are going up
o -inflation rate is the percentage increase in the change in prices from one period to the next, usually a year
o -to measure inflation the following
42. Economic environment
o *consumer price index (CPI)
o *surpluses & deficits
o *balance of payments (BOP):
o -current account: trade in goods & services & income from assets abroad
o -merchandise trade balance: net balance of exports minus imports of merchandise
o -deficit: imports exceed exports
o -surplus: exports exceed imports
43. Economic environment
o External debt
o Internal debt
o Privatization
o Transition to a market economy-includes liberalizing economic activity & establishing legal & institutional framework
44. Economic environment
o Process of transition
o Russian transition
o *includes political & economic transition at the same time
o *initial transition steps resulted in steep economic declines
o *soft budgets, subsidies & other government supporting activities have continued
o *hard administrative constraints have disappeared & are being replaced with connections & corruption
o *debts & deficits-both internal & external area real challenge
45. Economic environment
o China’s transition
o *Chinese growth has been far stronger than for other countries in transition
o *china has maintained totalitarian political control while loosening the economy
o *a major challenge is privatizing state owned enterprises
46. Economic environment
o The future of transition
o *continued macro stability
o *maintaining economic growth
o *continued improvement in institutional & structural areas
o *the solution of social issues such as poverty, child welfare, HIV/AIDS
47. Ethical issues in IB
o Utilize natural resources optimally & appropriately
o Benefit should accrue to the host country in the nature of production/export
o Technology transfer, employment, training of host country’s personnel, equal treatment to be done
o Social segment responsibility to be discharged
o Accounting should be transparent
o Do not involve in host country’s politics.
o Avoid bribery
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