Part 2 - The environment of international business

Synthesis
A theme of Part 1 was interactions by businesses with numerous players within national environments, in a context of growing international interactions. The chapters of Part 2 have examined key aspects of the business environment (economic, cultural, political and legal), building on the themes of national distinctiveness and increasing interactions – among businesses, with governments and within societies. The economic environment is central to business activity. The international economic environment comprises a variety of national economic systems which shape the ways in which businesses organize themselves, raise capital, carry out their activities and provide goods and services to customers. It has been assumed that capitalist enterprises and markets are the best models for national economies to adopt, but in today’s world, we see differing models of capitalism, as well as systems which question the ability of capitalism to achieve social goals. A post-war trend of market liberalization among many of the world’s countries is perhaps giving way to a trend which takes a more critical view of markets and sees a more positive role for governments to play. This trend is evident in the emerging economies, where, as we have seen, governments are not content to sit on the sidelines, but see themselves as economic players – increasingly on the world stage.

The emergence of new international players, such as China, India and Brazil, present MNEs with opportunities for growth on a scale unattainable in the mature markets of the US and Europe. However, these emerging markets present challenges for Western MNEs steeped in their home cultures. As Chapter 4 highlighted, an understanding of the cultural environment is critical to business success anywhere, but understanding and assessing cultural phenomena (such as values, beliefs and social relations) can be challenging as they do not lend themselves readily to measurement in the same way that economies do. MNEs might assume that middle-class consumers in all markets are becoming more like their home consumers in their tastes, but they soon find that local culture continues to influence lifestyles and purchasing behaviour, even in new urban, industrialized environments. Many MNEs venturing into new markets opt for a joint venture or acquisition of existing businesses as their entry mode. The participation of the local partner is valuable in a foreign environment, but bridging the cultural divide still poses challenges.

Culture impacts on the economic life of a country, and also on its political and legal environment. National political systems have evolved in the historical context of peoples and societies. Although there has been a trend towards introducing democratic institutions in countries around the world, there are also many examples of authoritarian governments cloaking themselves in the outward forms of democracy. It is sometimes said that, for international business, a stable authoritarian government is preferable to an unstable democracy. Chapter 5 has highlighted that stability may be transitory, as power struggles behind the scenes can erupt at any time. Moreover, authoritarian regimes lack sound independent legal systems, adversely affecting foreign organizations when they make legal claims or defend themselves against local organizations in the courts. Management of political and legal risks, therefore, is crucial for today’s international manager. Emerging markets, which present some of the most inviting opportunities, also pose some of the greatest political and legal risks. As these chapters have shown, an understanding of the environmental dimensions will aid managers in their interactions with key players, including governments. Also helping to mitigate the risks is the growth in governmental co-operation at international level. The tension between national and international perspectives at governmental level can create uncertainty for businesses, but by appreciating their differing perspectives, companies are better equipped to formulate strategy.

Reflection and discussion

1. Give examples from the chapters to show the role of government in the national economy. Comparing these examples, which do you feel is the best ‘model’?


2. Cite examples of MNEs encountering cultural hurdles in foreign environments. Which do you feel have been the most successful, and which the least successful?


3. Cite examples of companies which have encountered legal and political obstacles in either home or foreign environments, and state how they dealt with them.

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