Download - 2013 IB PEST
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PEST
INTERNATIONAL BUSINESS
Dr. Manohar Pandit
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BenefitsGreater range of mode of entry e.g. via
trade, licensing, subcontracting, franchising
(locational specialization)Better access to external resources and
capabilities that may need to complement
their core competencies(outsourcing)Fewer constrains on geographic dispersion
of the value chain(spatial mobility)
WHY GO INTERNATIONAL
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INTERNAL ENVIRONMENT
International Business is an attitude of mind,approach of the company with a globaloutlook, seeking profits around the world on a
planned and systemic basisAudit
Resources
CapabilitiesCore Competencies leading to competitive
advantage
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INTERNAL ANALYSIS
MarketingProducts/services
Price/promotion
Distribution/location
People
Management
Office staff/other
Sales force
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INTERNAL ANALYSIS
Operations/facilities
Implementation
Facilities/equipment
Cost management/efficiency
Finances
Profitability
Debt position/capital structure
Inventory/receivable management
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RESOURCES
Resources are firms capital equipment, skill of
individual employees, patents, finance, and
talented managers
Ta n gi b le R es o ur ce s Assets that can be seenand quantified
Intangib le Res ources Organizational
culture, reputation, intellectual property rights,
patents, trademarks, copyrights, networks, Family
commitment
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RESOURCES
By themselves, resources do not create a
strategic advantage for the firm
Firm needs Capabil it ies
Capabilities can create competitive
advantage for International Business
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INTERCOUNTRY DIFFERENCES
AFFECTING INTERNATIONAL BUSINESS
International
Business
Cultural
Factors
Legal and Political
Factors
Economic
Systems
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GLOBAL ENVIRONMENTAL SCAN
Competition
Legal restraints
Government controls
WeatherFickle consumers
Natural disasters
and many other uncontrollable elements can,and frequently do, affect the profitable
outcome of good, sound marketing plans
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GLOBAL ENVIRONMENTAL SCAN
The marketer cannot control or influence these
uncontrollable elements but instead must adjust
or adapt to them
What makes marketing interesting is thechallenge of molding the controllable 4 Ps within
the framework of the uncontrollable elements
(competition, politics, laws, consumer behavior,level of technology, and so forth) in such a way
that marketing objectives are achieved
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ENVIRONMENT
Governments
Politics
Legal/regulatory
bodies
Local/national/regional cultures
Infrastructures
Nongovernmental
organizations
Intergovernmental
organizations
Non market Factors
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Culture
Heterogeneity
(a measure of
differences across
markets andwithin markets) of
customer tastes
and preferences
Competitors in the
market
Product offerings
ENVIRONMENT
Market Factors
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POLITICAL ECONOMY
Economic, Political, Legal and Cultural Systems
are interdependent
Politicians Shape Laws
Laws help Economic Activity
Economic Activity affects Culture
Culture influences Nation
Understanding inter-relation of these factors
help in International Business
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POLITICAL ECONOMY
Political System
System of government in nation
Parliamentary, Absolutist
Democratic vs Totalitarian
Elected, Dictator, Communist Totalitarianism
Individualism vs CollectivismRepresentative Democracy, Socialism, Communism
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ECONOMIC ENVIRONMENTAL
CONSIDERATIONS
Economic Factors:
Stage of Economic Development
Economic InfrastructureConsumer Income and Purchasing Power
Currency Exchange Rates
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ECONOMIC ENVIRONMENTAL FACTORS
Market Economy
Government role to encourage free and fair
competition, discourage monopolyCommand Economy or CPE
Govt. Sets Goals and Decides Price and
Quantity to be ProducedMixed Economy
Mix of Market & C P E
Stage of Economic Development
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ECONOMIC ENVIRONMENTAL FACTORS
Economic infrastructure
Countryscommunication, transportation,
financial, & distribution systems
Critical for determining how, where, & to
whom to do business, market
LG in India
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ECONOMIC ENVIRONMENTAL FACTORS
Consumer Income & Purchasing Power
Marketers must consider the average
household incomes of the consumers
Inflation
Growth rate
PPPBig Mac
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Currency Exchange Rates
A currency exchange rate is the price of
one countrys currency expressed in
terms of anothercountryscurrency.
Failure to consider exchange rates can
have severe consequences
Asian currency crisis
ECONOMIC ENVIRONMENTAL FACTORS
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POLITICAL ECONOMY
Legal Systems
Common Law
Civil Law
Theocratic Law
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Key Legal IssuesHR
Contracts, Visa, Recruitment,Work norms, Repatriation
MarketingPackaging Norms - legalrequirements, IPR-Trademark,Copyright, Patents
Infringement, Unfair competitionCounterfeiting, Gray Market
POLITICAL ECONOMY
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Key Legal Issues
Finance
Trade and Investment Regulations
Financial Flow Regulations
Taxation
Reporting Requirements
Ownership Regulations
Dispute Resolutions
POLITICAL ECONOMY
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INTER-COUNTRY DIFFERENCES
AFFECTING INTERNATIONAL BUSINESS
InternationalBusiness
Cultural
Factors
Legal and Political
Factors
Economic
Systems
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SOCIAL / CULTURE
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" Culture is more often a source of conflict than
of synergy. Cultural differences are a nuisance
at best and often a disaster."Prof. Geert Hofstede,
Emeritus Professor, Maastricht University
The collective programming of the mind
distinguishing the members of one group orcategory of people from another is culture
CULTURE
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LEVELS OF CULTURE
National Culture
Sub Culture
Organisational
Culture
Occupational
Culture
National cultures belong to anthropology; organizational cultures tosociology. Organizational cultures are rooted in practices, they are tosome extent manageable; national cultures, rooted in values. Valuesare acquired in childhood, national cultures are remarkably stableover time
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Culture Its Characteristics
Prescriptive - Purchase Decisions That
Are Socially Acceptable
Socially Shared - Based On Social
Interaction & Creation
Facilitates - Advertising & Communication
CommunicationLearned - Not Genetically Passed
on, Learned & Acquired
CULTURE
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Culture Its Characteristics
Subjective - Different Ideas About Same Object.
Unique & Arbitrary
Enduring - Shared & Passed From Generations
To Generations
Cumulative - Broader Based, Adapts New Ideas,
Discards OldDynamic - Adapts To New Situations And
Knowledge
CULTURE
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A cross-cultural analysis involves the
study of similarities and differences
among consumers in two or more nations
or societiesThe cross-cultural analysis creates an
understanding about values, customs,
symbols, & languages of other societies.
CULTURAL ENVIRONMENTAL FACTORS
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Occupational
Culture
Culture as a system of values and normsValues Abstract ideas about what a groupbelieves to be good, right, and desirable. Valuesare shared assumptions of how things ought to
beNorms Social rules and guidelines thatprescribe appropriate behaviour in particularsituationsValues influence the behavior of the consumers
McDonalds in India (Veg outlets) Business lunch
CULTURAL VALUE DIMENSIONS
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CULTURAL ENVIRONMENTAL FACTORS
Customs are the norms and
expectations about the way people
do things in a specific countryCosmeticsFrench view
Japanese Valentines Day
Touching feet in IndiaCelebrationsIndia, Worldwide
Customs
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The Foreign Corrupt Practices Act makes ita crime for U.S. corporations to bribe an
official of a foreign government orpolitical party to obtain or retain businessin a foreign country
Bribes are a tax deductible expense in France
& GreeceCooperation money in Indonesia
Customs and Practices
CULTURAL ENVIRONMENTAL FACTORS
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Cultural symbols are things that
represent ideas and concepts.
Semiotics is the study of thesesymbols.
Improper use of symbols can be
disastrous for global marketers
Symbols
CULTURAL ENVIRONMENTAL FACTORS
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Coke with the ParthenonSymbols
CULTURAL ENVIRONMENTAL FACTORS
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Nike AirSymbols
CULTURAL ENVIRONMENTAL FACTORS
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SwastikSymbols
CULTURAL ENVIRONMENTAL FACTORS
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Language serves as a window on the
culture of a society
The best language to communicate withconsumers in is their own
The most powerful aspect of culture that
Can become political weapon Has created a nation
Words carry values
Language
CULTURAL ENVIRONMENTAL FACTORS
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Over 3,000 languages spoken world-wide
Japanese, Mandarin, Cantonese
Every language has limitations exceptSanskrit
Vicks in Germany
Pepsi in Arabic countries
Jalapeno , J and Y ( :- )Makaya Ntini
Water in English
Language
CULTURAL ENVIRONMENTAL FACTORS
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Some words can not be translated. Theseare conceptsShraddha AnubhutiAvatar
In back translation, a translated word isretranslated into the original language by a
different interpreter (error checking control)Yeh aansoo mere dil ki juban hai
Language & Back Translation
CULTURAL ENVIRONMENTAL FACTORS
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When Parker Pen marketed a ball-point pen inMexico, its ads was Parker Pens "won't leak inyour pocket and embarrass you"
was mistranslated to "No te embarazarchorrendose en tu bolsillo" which means
Parker Pens "Won't leak in your pocket andimpregnate you".
Printed T-shirt for the Spanish market whichpromoted the Pope's visit. Instead of "I sawthe Pope" (el Papa), the shirts read "I saw thePotato" (la papa)
Language & Back Translation
CULTURAL ENVIRONMENTAL FACTORS
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CommunicationChances of miscommunication increase
substantially when the people are from
different cultures. Different interpretationsSuspect
American vs British English
Boeings 767 aircraft - a mirror finish.
Expensive to resolve
Nova is No go in Spanish. Chevy failure
CULTURAL ENVIRONMENTAL FACTORS
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Nonverbal CommunicationGestures, both intended and self-directed, such
as anger, fear, joy, frustration, pensive, puzzled
Facial expressions, such as smiles, frowns, andyawns
Posture and stance
Clothing and hair styles (hair being more likeclothes than like skin, both subject to the fashionof the day)
Walking behaviourInterpersonal distance
Touch conveys emotions
CULTURAL ENVIRONMENTAL FACTORS
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Colour symbolismEye contact and direction of gaze, particularly in
listening behaviour
Architecture and interior design
Artefacts and nonverbal symbols, such as lapel pins,walking sticks, and jewellery
Graphic symbols, such as pictures to indicatemensroomorhandlewithcare
Smell (olfaction), including body odours, perfumes,and incense
Speech rate, pitch, inflection, and volume
CULTURAL ENVIRONMENTAL FACTORS
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Gift-Giving and HospitalityGifting rituals
Tiffany in Japan, nos.
Knifes and scissorsFlowers
Apparels
HandkerchiefsForcing to eat more, similar to one for the road
Showing emotional bonding
CULTURAL ENVIRONMENTAL FACTORS
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Cultural context of various countriesIn a low-context culture, the words used by the
speaker explicitly convey the speakers message to
the listener. Anglo-Saxon countries, such as Canada,
the UK, and the USA, and Germany etc are low-
context cultures
In a high-context culture, the context in which a
conversation occurs cultural clues are important inunderstanding what is being communicated as in
Arab countries and Japan
CULTURAL ENVIRONMENTAL FACTORS
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Saying
NOAmerica, India, Arabic countries
CULTURAL ENVIRONMENTAL FACTORS
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CULTURAL ENVIRONMENTAL FACTORS
Cultural context of various countries
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ReligionHinduism rather emphasizes spiritual
accomplishment than economic success.
Cycles of death and rebirth.MokshaProtestant ethic makes a virtue of high
savings rates, striving for efficiency, and
reinvestment of profits to improve futureproductivity, all are necessary for the
smooth functioning of a capitalist economy
CULTURAL ENVIRONMENTAL FACTORS
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Other factors that affect the culture
Social Structure
Individuals, Families, and Groups
Oriental and Western social valuesBelongingness,
for whom one works not the position
Social StratificationClass and Caste
IndividualismCollectivism
CULTURAL ENVIRONMENTAL FACTORS
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Culture plays significant role in influencingconsumer perception, that influencespreference and purchase
Marketing Mix can be effective as long asit is relevant to given culture
ROLE OF CULTURE IN MARKETING
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WE ALL ARE DIFFERENT
Ethnocentrism
PolycentrismGeocentrism
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IF THE WORLD WAS A VILLAGE OF
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How many would be from which majorregions of the world?
How many would speak what languages?
How many would practice what religions?How many would have what degree of
education?
How many would be malnourished?
How many would have regular access toclean drinking water?
IF THE WORLD WAS A VILLAGE OF
100 PEOPLE
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IF THE WORLD WAS A VILLAGE OF
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IF THE WORLD WAS A VILLAGE OF
100 PEOPLE
61 Asians12 Europeans
14 from the Western Hemisphere, both
north and south13 Africans
50 would be female
50 would be male74 would be nonwhite
26 would be white
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IF THE WORLD WAS A VILLAGE OF
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IF THE WORLD WAS A VILLAGE OF
100 PEOPLE
33 would die of famine
1 would be near death;
1 would be near birth7 would have a college education
8 would own a computer
11 would be homosexual
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ETHNOCENTRISM
Definition
Ethnocentrism derives from the Greek word
for people, ethnos and English word,
center
Tunnel vision is what the Ethnocentrism
is generally referred as
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PROBLEM WITH ETHNOCENTRISM?
Ethnocentrism leads to misunderstandingother persons
One falsely distort what is meaningful andfunctional to other peoples through our own
cultural reference. One see their ways in terms
ofoneslife experience, not their context
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One does not understand that he/she doesnot understand
One is not aware that he/she can develop
more valid understandings about how theyexperience life
Very few Westerners understand Indian
spiritualism, when they understand Indianperspective
PROBLEM WITH ETHNOCENTRISM?
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Expression of Ethnocentrism
Violence
Discrimination
Proselytizing
Verbal aggressiveness
PROBLEM WITH ETHNOCENTRISM?
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EffectsCreates the feeling that ones own culture is
superior to othergroupscultures
Moves one to criticize, subordinate,
undermine, and develop conflictingrelationships with other groups
Ethnocentric feelings can even cause anindividual or group to fear for their own
existenceBy implication other people's ways of thinking,
behaviour are aberrant, strange and inferior
PROBLEM WITH ETHNOCENTRISM?
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STEREOTYPE
DISCRIMINATION
Generalized attitudetowards members ofa group
Behaviors directed
towards people onthe basis of theirgroup membership
Generalized beliefabout members of agroup
PREJUDICE
PROBLEM WITH ETHNOCENTRISM?
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Extreme effects of Ethnocentrism
Racism
ColonialismEthnic cleansing
PROBLEM WITH ETHNOCENTRISM?
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Environmental Adaptation
Ability to effectively interpret the influenceand impact of the culture in which you hopeto do businessCultural adjustments
Establish a frame of reference
Avoid measuring and assessing markets
against the fixed values and assumptions of
your own culture
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THE SELF-REFERENCE CRITERION
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THE SELF REFERENCE CRITERION
AND ETHNOCENTRISM
The key to successful internationalmarketing is adaptation to the
environmental differences from one
market to anotherPrimary obstacles to success in
international marketing are
SRCAssociated ethnocentrism
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THE SELF-REFERENCE CRITERION
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Ethnocentrism is notion that ones ownculture or company knows the best
Ethnocentrism and the SRC can influence an
evaluation of the appropriateness of adomestically designed marketing mix for aforeign market
The most effective way to control the
influence of ethnocentrism and the SRC is torecognize their effects on our behavior
THE SELF REFERENCE CRITERION
AND ETHNOCENTRISM
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SELF REFERENCE CRITERION (SRC)
As unconscious reference to ones own
cultural values, experiences, and knowledge
as a basis for decision-making is madeThe SRC significantly influences ability of
international managers to objectively
evaluate environmental factors and make
business decision
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APPROACH TO ELIMINATE SRC
Step 1:Define the business problem or goal inhome-country traits, habits, or norms
Step 2:Define the business problem or goal inforeign country cultural traits, habits, or
norms. Make no value judgmentsStep 3:Isolate the SRC influence in the problem and
examine it carefully to see how it complicates theproblem
Step 4:Redefine the problem without the SRCinfluence and solve for the optimum businessgoal situation