International Environment and Global Business Environment

1. Global Environment
Prof. Prashant Mehta
National Law University, Jodhpur
Bridge-outsourcing.com

2. BUSINESS ENVIRONMENTAL &ANALYSIS
Nature of Globalization
Why Do Companies Go Global
Manifestation of Globalization
Strategic Response to the Environment
Competitive Environment
Porter’s Five Forces Model – Competitive Analysis

3. Nature of Globalization
•In new paradigm it means fresh belief, new working methods, PEST realities
in which previous assumptions are no longer valid.
•Integration of developing economies with the world economies. Creating
one huge market (EURO, BRICS, NAFTA, OPEC)
•Reduction in tariffs and Removal of trade barriers.
•For companies it means:
•Globalization creates MNC or TNC with diversified portfolio using R&D,
Production, Marketing, and Financial advantages.
•Ability to compete in domestic market with foreign competitors.

5. Nature of Globalization
•Global Companies has three Characteristics
•It is conglomerate of multiple units located at different parts of the world
•Multiple units draws common pool of resources, money, credit information,
patents, trade name, and control systems.
•Units responds to common strategy
•Super-national enterprise created by IMF or World Bank – works with nations
which permits its entry and will bring economic world closer together. It could
serve all nations without being especially attached to nay one of them.

6. WhyDo CompaniesGo Global
• Rapid shrinking of time and distance across globe due to faster
communication, speedier transportation, growing financial flows, and fast
emerging new technology.
• Home markets is not in position to absorb all goods / services that are
produced. Like Japanese goods flooding US markets.
• Develop attractive new products for home markets  Export these
products  Foreign demand grows  Foreign production  Foreign Direct
Investment.
• Companies go global to source cheaper raw materials besides protecting the
old markets and exploring the new markets.
• To reduce transportation costs. The higher the ratio of unit cost to the
selling price per unit, more significant transportation factor becomes.

7. WhyDo CompaniesGo Global
• Companies in electronic and communication go global to recover the
expenditure of R&D spends by selling it across major markets and
generate cash flows.
• The following developments are responsible for TNC operations.
• Increasing emphasis on market forces and growing role of private sector in
nearly all developing countries.
• Globalization of firms and Industries
• Fast changing technology affecting the organization
• The rise of service sector in the world economy, regional economic
integration and its growth.

8. Manifestationof Globalization
• Configuring anywhere in the world - Going to any location
• Interlinked and Independent Economies – Linked to Global economy
• Lowering of Trade and Tariff barriers – Less government intervention,
privatization makes markets more competitive and cheaper .
• Infrastructural Resources and Inputs at International Prices creates
competitive environment (check inflation and high infrastructural costs).

9. Manifestationof Globalization
• Increasing trends toward Privatization regulated by regulators
• Entrepreneur and his unit have central economic role and create national
wealth.
• Mobility of skilled resources and other factors of production – Eg. Inviting FDI
• Market Side Efficiency i.e. Cost, quality, processing time, terms of business are
dominant competition drivers. Better quality of product and service is
provided.
• Formation of Regional Blocks - Eg. SAARC which provides for regional
development, economic, social, cultural technical cooperation on matters of
common interests.

10. ResponsesToTheEnvironment
What business should do in particular situation in the environment?
It should exploit the opportunities and address the threats.
• Least Resistance: Goal maintaining units, passive in their behaviour,
content in taking path which offers least resistance.
• Proceed with Caution: They adapt to changing environment, monitor the
changes, analyse the impact on their goals and activities and adopt
strategies of survival, stability, and strength by taking corrective –adaptive
strength.
• Dynamic Response: Partially manageable and controllable business
environment. Feedback system is highly dynamic, converts threats in
opportunities. Have alternative course of action.
Organizations can shape part of its relevant external environment on a reciprocal basis

11. CompetitiveEnvironment
The competitive environment of a business is the part of a company's
external environment that consists of other firms trying to win customers
in the same market. It is the segment of the industry that includes all
immediate rivals.
Who are the competitors?
What are their product and services?
What are their market share?
What are their financial position?
What gives them cost and price advantage?
What are they likely to do next?
Who are the potential competitors?

13. CompetitiveEnvironment
Cooperation in Competitive Environment:
• Oligopoly converting into Monopoly situation. Eg. OPEC
• Cooperation arrangement between Tata and Fiat
• Cold drink manufacturer in arrangement with restaurant chain
• Cooperative networks in Japan called as Kieretsus
Cooperation on Account of Family Ownership:
• The interest of family largely influence the managerial decisions and
activities of the enterprise. Birla, Tata, Reliance, Modi group etc.
• Succession remains a tricky issue.
• Split is sometimes possible hurting the interest of businesses and
investor sentiments.

14. Porter’sFiveForcesModel–CompetitiveAnalysis

15. Porter’s ForcesModel– CompetitiveAnalysis
Porter's Five Forces Analysis is an important tool for assessing the potential for profitability in an
industry. With a little adaptation, it is also useful as a way of assessing the balance of power in more
general situations. It works by looking at the strength of five important forces that affect competition:
• Supplier Power: The power of suppliers to drive up the prices of your inputs.
• Buyer Power: The power of your customers to drive down your prices.
• Competitive Rivalry: The strength of competition in the industry.
• The Threat of Substitution: The extent to which different products and services can be used in place of
your own.
• The Threat of New Entry: The ease with which new competitors can enter the market if they see that
you are making good profits (and then drive your prices down).
By thinking about how each force affects you, and by identifying the strength and direction of each
force, you can quickly assess the strength of your position and your ability to make a sustained profit in
the industry. You can then look at how you can affect each of the forces to move the balance of power
more in your favor.

16. Porter’s ForcesModel– CompetitiveAnalysis
• This worries him:
• The threat of new entry is quite high: if anyone looks as if they're making a
sustained profit, new competitors can come into the industry easily, reducing
profits.
• Competitive rivalry is extremely high: if someone raises prices, they'll be quickly
undercut. Intense competition puts strong downward pressure on prices.
• Buyer Power is strong, again implying strong downward pressure on prices.
• There is some threat of substitution.
Unless he is able to find some way of changing this situation, this looks like a
very tough industry to survive in. Maybe he'll need to specialize in a sector of
the market that's protected from some of these forces, or find a related
business that's in a stronger position.