Global Business Management(MGT380)

Lecture #2: International Business Environment-Culture

Learning Objectives

To get familiar with the orientation and stages of globalization

To know the drivers of internationalization

To understand the significance of international business environment

To define the effect of culture on international business

Quick Recap of Last Lecture International business Differentiating feature of GB (Political &

legal differences; cultural; economic; currency; restrictions; cost of distance)

What are the Forces of GB (Profit, growth, domestic market constraints; competition; government policies)

4-types of International orientations (Ethnocentrism; polycentrism; regiocentrism; geocentrism)

Mini-case study: Procter & Gamble in Japan

P&G enter the Japanese market in 1972, was the first one to introduce disposable diapers in Japan, gained 80% of market share.

Lost its share to 8%, shifted their focused on laundry detergents, and personal care product but failed and lost $40 million/year.

Marketing strategy: In TV advertisement they showed a women relaxing in a bath of soap bubbles, while her husband walked in and asked her about the soap. The same advertisement produced the significant results in Europe and US but not in Japan.

Contd…

Case discussion questions: Why a successful advertisement in one

market failed in another market Cultural differences

What was the central problem with the management’s approach (Hint: see differences in international orientation) Ignoring the cultural differences and focusing purely on domestic market strategies(ethno-centrism)

International orientation

There are four types of orientations toward internationalization. Ethnocentrism (Home market orientation) Polycentrism (Host country orientation) Regiocentrism (regional orientation) Geocentrism (World orientation)

This is also termed as EPRG framework. It is also associated with stages of globalization

Features 1)Ethno 2) Poly 3) Regio 4) Geo

Orientation Home country

Host country Region Globe

Perception of market

Domestic market is superior ;Extension

Each market is distinctive

Markets can differentiated bases on Regional char

Entire world is a single market

Marketing strategy

Extension of domestic strategy

Localization Trade-off b/w localization and standardization

Global standards

Pros No cost; Easy route; less risk

Adaption to local market to exploit benefits

Take benefits of both Loc & Stand

Economies of scale

Cons Limits the scope of exploitation of Internationalization

Higher cost of adoption; Delays with adoption

Neglects differences across regions

Standardization is not always successful

Stages of globalization

Purely domestic firm

Domestic firm with some foreign business

International Company

Global Company

Transnational Company

Drivers and restrainers of globalization Liberalization

In the end of 2000, a total of 1,185 regulatory changes were made. Of which, 1121 were for enhancing FDI. Only in 2001, 208 regulatory changes were made by 71 countries. Of these, 43% were made countries in Asia & Asia Pacific. During 2001, 97 countries made 158 Bilateral Investment Treaties, of which 66 were made between developing countries.

MNCs Technology

Death of distance, no boundaries, health care sector

WWW Trade reached to $6.8 trillion by 2004 from

nothing 95 Product development costs Competition Regional integration

EU, North American Free Trade Agreement, BRIC

Leverage(Advantages by experience) Experience transfers Scale economy Resource utilization Global strategy

Built on scanning of environment

Restraining forces External factors: Policies, regulations Internal factors: Organizational resources,

culture

Global business decision

International business decision is made on the basis of Company objectives, company resources, market potential and environmental factors

Market selection decision Entry mode decision International structure decision: it

depends on level of internationalization, nature of product, market, resources.

Chapter: International Business Environment

Business environment

A firm in international market encounter three different sets of external environment Domestic environment Foreign environment Global environment

For example: A company intends to enter in foreign market have to adopt internationally acceptable standards and practices like accounting, reporting, corporate governance, etc.

A key to success in the foreign market is adaptation to the differences in the environment s.

Prof. Lee suggested that the root cause of most international business failure is the self-reliance criterion( SRC), that is, an unconscious reference to one’s own cultural values, experiences, and knowledge on the basis of decision.

Solution is to compare the solution across markets.

Example: American company Texas Instruments (semi-conductor manufacturer) entered in Japanese market and adopted the home market approach to hire, pay and benefits and dismissing the Japanese system of offering bonus twice a year.

Culture and Global business “ Integrated system of learned behaviour

patterns that characteristics of the members of any given society.”

It influence the international business activities such as the market(customers), Marketing, human resources, negotiations, etc

Two types High-context cultures Low-context cultures

Culture can be homogeneous, or there can be intra-cultural differences based on nationality, origin, race, religion

Some cultures are more dominating

Elements of Culture

Reference: Book Czinkota et al.

Language differences across the markets ‘Tabling the proposal’ means in US that

manager wants to delay the decision while British manager would take it as immediate action would be taken.

‘By the end of the day’ for British manager it does not mean within 24 hours rather when he will finish the job, on the other hand, US manager will take it as within 24 hours.

With non-spoken messages managers can be lost in translation, e.g., body language, gesture, etc

There are four elements within non-spoken language that managers must know: time, space, material possessions, friendship pattern

Ok sign

Religion: Reflected in attitude and values of the society. For firms it can be a task of organizational integration, coordination, harmony. It also influence Entrepreneurship, BoD, consumption.

Christianity: major holidays, gifts tradition,

Islam: role of women, family, religious restriction on products, interests-payments, Advertisement

Hinduism: cast system, role of family

Manners and Customs: make the cultural differences among the people. E.g. General Food’s Tang

Reference: Book Czinkota et al.

Mini-cast study: Nestle

Nestle, the largest food company has headquarter in Switzerland, but its products can be found all over the world. Unlike the common way to make different websites for different markets by simply having an extension of Swiss site, Nestle developed difference websites for each country, like US, UK, Japan, Philippine.

Questions to think are: By not having the extension websites they

are rejecting the basic assumption ‘Internet culture overcome any differences of national culture’. Can you think of any reason?

Despite having similar products, why Nestle have different websites for each market, why?

Visit these websites and identity how Nestle responds to the cultural differences

Recap of today’s lecture

4 types Business Orientation Globalization stages(Purely domestic

firm, small foreign activity, International company, Multinational, transnational)

Drivers: Liberalization, Technology (Death of distance, no boundaries), MNCs, WWW, Product development costs, Competition, Regional integration, Leverage-advantages by experience(experience transfer, economy of scale, resource utilization, global strategy)

Restraining forces: External and Internal International business decision making:

1. need to see objectives, resources, market potential, environmental factors 2. market selection 3. entry mode 4.Int structure decision

Business Environment (domestic, international, global), self-reliance criterion

Culture: Integrated system of learned behaviour patterns that characteristics of the members of any given society

High-context Vs Low-context culture Elements of culture

Language Religion Manners and customs