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Unit-2, Handouts:

INTERNATIONA BUSINESS ENVIRONMENT INTERFACE AND ANALYSIS

Political-legal environment: 

The effects of this are quite visible. Just think of the effect of changing taxes, or raising interest

rates. If the legal system, pushed by politics lowers he acceptable emission rates, companies may

have to invest in new equipment or close down.

Technological state (R+D): 

Technology can bring millions to one company and take millions from another. Organizations on

the frontier usually experience a boom, with many following, but some rivals may go bankrupt.

A good manager has to be aware of change and embrace technology to gain an edge on

competition.

Social-Cultural environment 

This is a very important but also very diverse category. Think of a company in China and a

company in Hungary. A Hungarian company only has to produce for a potential market of about

10 million. A Chinese company has a potential market of 1.3 billion., which is 130 times as

much! That alone is a huge difference, and we haven’t even touched cultural differences. For 

example in India, McDonalds probably wont sell any hamburgers made from beef because they

don’t eat that there. A manager has to keep all these in mind when leading an organization! 

Hierarchical Complexity & Causality in International Business:

Advanced technologies and business environment have extremely different physical

implementations, but they are far more alike in systems-level organization than is widely

appreciated. Convergent evolution in both domains produces structural architectures that are

composed of elaborate hierarchies of interactions and layers of feedback regulation, are driven

by expected robustness to uncertain global business environments, and use often imprecise

components. This complexity may be largely hidden in idealized commercial settings and in

normal business operation, becoming visible only when contributing to rare cascading failures as

in the recent case of toppling top economies of the world due to economic recession. These

puzzling and paradoxical features are neither accidental nor artificial, but derive from a deep and

necessary interplay between complexity and robustness, modularity, feedback, and fragility.

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The complex dynamics of business processes at all levels of environment represent one of the

primary issues of structural modeling. These dynamical processes can be best understood in

terms of a set of relations between individual entities and their corresponding environment,

which often includes other influencing entities. For example, while a specific business process

inside a business functionary/ department interacts with its neighboring processes as well as with

the overall departmental medium and specific business department interacts with the rest of the

organizational branches and the business organization itself interacts with the surrounding

environments which in turn also have several intra-inter environmental interactions. All these

processes and interactions, taking place along several spatial and temporal scales, are essential

for defining the competitiveness and stability not only of specific individual organization but

also of their environment as a whole.

Political Environment:

Political Variables  Political Risks  Political Strategies Sovereignty

Forms of Govt.

•  Parliamentarian

•  Absolutist

Political Parties &

ideologies (SINGLE-

DUAL-MULTIPARY)

Political Stability

•  Sanctions

•  Confiscation

•  Expropriation

•  Nationalization

•  Domestication

•  Economic (price,

exchange, taxes-

control

•  Political activism

•  Planned

domestication

•  Broad basing

•  Pay-offs

•  Lobbying

•  Political bargaining

•  Insurance

•  Local content 

How managing political risk improves global business performance:

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Situation

Companies doing business internationally are grappling with political issues that sometimes

surprise even the most experienced. A new study by PricewaterhouseCoopers and Eurasia Group

shows that despite current efforts, a high percentage of multinational companies believe they are

not doing all they could to manage political risk effectively.

PricewaterhouseCoopers and Eurasia Group believe that more effective management of political

risk can help companies protect their investments and take advantage of new opportunities,

thereby improving global business performance. In our view, this requires leaving behind fear

and uncertainty and integrating political risk management into a systematic process embedded in

a company’s other business processes. Companies doing business internationally are, by nature,

willing to take big risks. We believe that big risk takers should be informed risk takers — and

political risk management is an essential element of risk-taking savvy.

Implications

When it comes to improving global business performance, managing political risk helps in two

fundamental ways. First, it protects new and existing global investments and operations by

helping management anticipate the business risk implications of political change or instability.

Prepared and aware, management is more likely to be able to exit markets that are in danger of 

growing too unstable. Where short-term instability does not dampen the appetite to pursue long-term opportunity, management can implement risk mitigation and operational oversight to

control against shocks. Second, for a company constantly on the lookout for new opportunities,

monitoring political risk within target regions or across continents can help management hone in

on political developments that foretell a business boom, beating competitors to the punch.

successful Business Management is based on solving problems. If there were not a lot

of problems, you wouldn't need managers - but because there are lots of problems, you need

managers to analyze the problem, craft a solution, and monitor how the solution is carried

out. Part of being a successful Int' Business Manager (especially after 911) is recognizing that

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risk and threat situations effect int'l business in many ways, and, these situations have to be dealt

with, and "managed", or your company will be compromised and subsequently uncompetitive.

In the emerging economies of Central and South America, Eastern Europe, the former Soviet

Union, Asia and Africa, new business opportunities are continuing to present themselves on adaily basis as privatization takes hold, infrastructure needs grow and restrictions on foreign trade

are lowered. While the potential rewards from doing business in these countries are tremendous,

so are the risks. The companies that expand into these new markets with the greatest degree of 

success are those that do so cautiously and prudently, with the understanding that they may face

political and economic risks that can cause unexpected and catastrophic losses. The

possibility of loss resulting from political events such as changes in government policy,

economic instability or acts of terrorism can be great."

James F. Quirk, a vice president of Marsh & McLennan

Case-Study:

Risky business: political risks still abound for foreign companies in Latin America, and insurers

are there to profit

They tell you in business school that reward loves risk and, apparently, that's the case in Latin

America for multinational companies.Despite a wholesale move to democratic capitalism across

the region, political crises in Venezuela, Bolivia, and Ecuador are creating untold hazards that

may well lead to significant business losses.Expropriation, foreign exchange moratoriums,political violence--the list goes on. According to the Multilateral Investment Guarantee Agency

(MIGA), a foreign-investment insurance agency run by the World Bank, political risk concerns

helped cut the flow of investments in the developing world by 23% to US$135 billion in 2003,

compared with just two years earlier. While economies gained steam in 2004, political-risk 

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premiums remained high, as companies stayed on the sidelines as opposed to investing abroad,

according to MIGA.

U.S. insurance giant Aon says the number of large-scale confiscations of private properties from

governments has tapered off dramatically in the last 20 years, but instability still exists.To

mitigate potential losses, companies are turning to political risk insurance. MD International, a

mid-size medical products exporter in Doral, Florida, recently purchased a policy because the

company's lender required it before financing a transaction in Latin America. "We would not

have been able to do the transaction without it," says Maggie Morales-Perez, chief financial

officer of MD International, without giving details. "It's not something we could finance

ourselves,"

In countries where MD International has not been able to get political risk insurance "we are out

of the picture," Morales-P6rez says. As a result the company has not been able to compete in

Argentina, Ecuador and Venezuela. "We have had to pass on some of the deals because we can't

get insurance, which is affecting our competitiveness," she says.Some companies are finding that

turmoil, whether political or economic, reduces the availability of risk insurance. "In the difficult

markets, coverage is being written on a selected basis" says Matt Handwork, a partner in the

Columbus, Ohio office of IRC North America, a specialty broker of political risk and trade

insurance that helped MD International get its policy. "Often, many small transactions are

difficult to provide coverage for because on the political risk side, if they are too small to

generate enough premiums, then the insurers are not interested."

While numerous factors, such as the amount of exposure and type of coverage, play a role in

pricing, premiums normally range from 0.5% up to 3% a year on exposed limits. For example,

the cost on a $100 investment would run from $0.45 to $2.70, based on insuring 90% of the

transaction. However, rates have been known to go as high as 5% in regions where volatility is

greater. Of Latin America's major economies, only Chile is considered to be a low-risk country,

according to Aon, a U.S. insurance giant. Venezuela, Colombia and Ecuador are considered to be

high-risk countries while Peru, Bolivia, Uruguay, Paraguay and Argentina are considered

medium-high risk countries.Despite the region's volatility, insurance companies and brokers say

that demand is high. "We had significant growth last year," says Dan Riordan, executive vice

president and managing director at Zurich North America. "There is enough going on in the

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emerging markets to keep us busy for some time to come. Large multinationals that have

operations throughout the world are coming back into the market rather than self-insure."

Zurich North America writes up to $75 million per risk covering up to 15 years. "We cover large

and we cover long," Riordan says. "Our industry doesn't have a high frequency of loss, but it

does have a high severity. That's how we look at price risk."Political risks can shift rapidly,

disrupting business and leading to unexpected losses. Different businesses can react in different

ways, and that's why underwriters first look closely at a company seeking risk insurance and at

its experience in a particular region. "We look at the project specifics, how well that project has

been vetted, structured and organized," says Riordan.Insurers also look at how a company will

deal with problems should they arise. Will a change in government affect its industry? Does it

have a strong joint venture partner? Does it have dispute resolution agreements built into

contracts? "If that's not been addressed, then those are risks we would not consider," Riordan

says.

Availability also depends on a company's industry. For example, general manufacturing plants

are considered less risky than companies extracting more politically sensitive products such as

oil, gas or silver.Bolivia is a prime example, says V. Manuel Rocha, former United States

Ambassador to Bolivia and managing director of Globis Group, a Miami global business

development company. "Bolivians feel gas and oil should be developed by a public, national

company, not a private company. So when private companies move into those areas, they

become vulnerable," says Rocha.

INTERNATIONAL TECHNOLOGY DECISION:

•  Technology diffusion: Rogers' bell curve

Technology adoption  typically occurs in an S curve, as modelled in diffusion of innovations 

theory. This is because customers respond to new products in different ways. Diffusion of 

innovations  theory, pioneered by Everett Rogers, posits that people have different levels of 

readiness for adopting new innovations and that the characteristics of a product affect overall

adoption. Rogers classified individuals into five groups: innovators, early adopters, early

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majority, late majority, and laggards. In terms of the S curve, innovators occupy 2.5%, early

adopters 13.5%, early majority 34%, late majority 34%, and laggards 16%.

Transfer of Technology/ Terms &Conditions

Key Points:

•  Patent

•  Know-how

•  Improvements

•  Grant back 

•  Royalties

•  Territorial restrictions

•  Export restrictions

•  Technical assistance

•  Arbitration

•  Termination

Definition of terms 

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•   Licenced patents. : This generally includes the patents, patent applications,

continuation, continuations-in-part, and divisions that relate to the licenced

technology. If the licence includes foreign countries, the definition would then

include the foreign counterparts of the patents and applications in each country. If 

there are several patents, patents applications etc., they are usually listed in an

attached schedule, which shows the necessary specific details of each. Typical

scheduled headings are licensor identification or docket number, patent title,

country(ies) where the patent is issued or filed, filing date, patent number for those

that have been issued and the issue date.

•  Licensed know-how/trade secrets. : This is licensor’s information to be transferred to

the licensee. The technology included in the know-how should be described in broad

terms but with enough specificity to avoid misunderstandings.

•   Licensed improvements. : If the licensor’s improvements are part of the licence, it is

the best to clearly define them in this section. Improvements usually include

inventions, technical developments and know-how, including trade secrets, as defined

in the agreement that : (a) the licensor has or has obtained the rights to license, the (b)

are patentable or not, (c) are developed or acquired during the term of the agreement,

(d) pertain to the licensed process and licensed apparatus and (e) have been put into

commercial use by the licensor. Their inclusion is a major consideration that should

be thought out carefully by all the parties to the agreement.

•   Major improvements. : Defining major improvements in an agreement is difficult.

The licensed improvements described above generally relate closely to the

technology transferred in the licence agreement , This section usually does not

include improvements resulting in a recognizable process or product shift. For

example, if a product, such as metal tube for the packaging of household products, is

the subject of licence agreement, an improvement developed by the licensor in the

product or in the process for making metal tubes should be transferred to the licensee

under the rights granted in the licensed improvements. However, if the licensor

develops a plastic tube for the packaging of household products, it most likely would

be considered a major improvements.

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•  Grant-back . : This is the term used to denote giving the licensor rights to the

improvements made by the licensee on the licensed technology. If the licensee grants

improvements back to the licensor, the scope of such improvements requires clear

definition in this section. It usually parallel the “ licensed improvements “ and “

major improvements “ definition.

•   Net sales. When royalties are based on a percentage of net sales, the parties must

decide and stipulate what the term means. Often it is gross sales less discounts,

commissions, returns, taxes or other credits as intended by the parties to the

agreement. This definition is obviously very important as it is used in calculating

royalties to be paid.

• 

Territory. The geographical areas where the licence will be in effect should be clearlyspecified. Each country covered must be named. If the rights vary by country as to

exclusivity, or in any other manner such as sales rights vs. manufacturing rights,

providing a table usually enhances clarity. Patents rights can only be granted for

countries in which the licensed patents are filed or issued, but know-how does not

have a territorial barrier.

•  Subsidiary. A subsidiary is a company either wholly or partially owned by another

company. The owning company is called the parent company. If the rights granted inthe licence apply to a parent company, as licensee, including its subsidiary or

subsidiaries, the ownership (whole, partial, with voting rights) must be defined.

Good practice requires that the subsidiary be controlled by the licensed party. For the

 purposes of the agreement, “control” means the power to direct the management and

policies of a subsidiary through the ownership of voting securities, by contract or

otherwise. This definition applies to the licensor with respect to his obligations under

the agreement. It should be clear whether the rights granted are from a parent, a

subsidiary or both.

Subject Matter of the Licence  

The licence grant 

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The grant is probably the most important part of the licence. Its provisions, outlined

below, require careful thought as to their content. To protect all parties, they should be drafted

unambiguously, leaving no doubt or open questions regarding the rights being granted.

Patent rights 

The term “licensed patents” should be defined in the agreement in order to identify the

patents, applications etc. included in the licence. These items should be shown clearly in a

schedule attached to the licence agreement. This applies for each country in the licensed

territory.

The grant specifies exclusivity, territory, rights conferred, limitations, maintenance and

protection of patents, and patent making.

Technical assistance 

Technical assistance can greatly reduce the time required by the licensee to move the

licensed technology into production. The obvious benefits are that the licensee generates income

more quickly and the licensor earns royalties much sooner. While technical assistance benefits

both parties, the licensor will need to have the resources available to fulfil this responsibility.

Common elements of the technical assistance include the following:

•  Plant visits and training. The licensee obtains rights to on-the-spot training of its

technical engineers, in the licensor`s facilities that are developing or using the

licensed process and/or making and selling the licensed product. Because training is

so important in the technology transfer process, this topic is dealt with at length in

module 15 on training.

•   Direct assistance. The licensee may obtain the right to have site assistance (within the

licensed territory) from the licensor`s technical personnel to the solve problems

related to commercial use of the licensed process and/or the making and selling of the

licensed product.

•  Consultation. This is the right of the licensee to contact the licensor by mail, telefax,

telex or telephone through representatives appointed by each party.

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Sublicence rights 

Subject to individual country laws, a licensee does not have sublicensing rights unless the

agreement authorizes them. Should the parties agree to allow sublicensing, the main agreement

should specify the rights and obligations of the licensor and licensee with respect to thesublicensee(s). it is usually obvious that granting sublicensing rights is good business for the

licensor and licensee. When the benefits are unclear for the licensor, but the licensee wants

sublicensing rights, the licensee should prepare and present a market plan to persuade the

licensor.

It is general practise for the licensor to have the licensee responsible for assuring that the

sublicensee fulfils all the requirements of the principal licence and also for collecting royalties.

Determining which party provides the technical assistance to the sublicensee is another majordecision for sublicenses. This responsibility usually falls to the primary licensee.

The best way to ensure that the sublicensee has obligations comparable to the licensee’s

is for the licensor to draft the sublicence. By so doing, it can be certain to include all the

pertinent requirements from the primary agreement. This procedure should be acceptable to the

primary licensee.

Payments 

The payments in technology agreements usually take the form of a lumpsum, a royalty or

a combination of both. The valuation and methods of payments in technology agreements are

discussed at length in module 16 on valuation and methods of payment.

Royalties 

Most licences require payment of royalties based on a percentage of the net sales of the

licensed product, as defined in the definitions section. Advance payments are sometimes required

to be made initially or over a period of time; they are applied against running royalties. More

often, royalties are collected at set periods (three months, six months or yearly) based on the net

sales for the period immediately preceding.

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Exclusive licences commonly contain a yearly minimum royalty provision representing

the yearly guaranteed earnings for the licensor. Such provisions are, however, not uncommon in

nonexclusive agreements. The parties generally set the minimum’s based on a conservative

estimate of projected net sales over the life of the agreement. The licensee should be careful

when accepting a minimum royalty provision as this could represent a relatively heavy financial

burden if there are of delays in start-up of production. Otherwise, the licensee should negotiate

for minimum’s to start after an initial commercialization period and then increase gradually (for 

five or so years) up to an agreed-on amount that generally remains in effect for the life of the

agreement.

From the licensor`s viewpoint, minimums in a licence agreement attempt to ensure

vigorous effort on the part of the licensee to commercialize the technology. Agreements may

provide for termination of the licence if the minimums are not being met or, less stringently, to

convert the licence from exclusive to non-exclusive status. For this reason, if minimums cannot

be avoided in the licence, the licensee must do its utmost to have fair, realistic minimums set.

Delineating absolutes rules on setting minimum royalties is quite difficult, because so

many factors are involved. A reasonable procedure is for the licensor and licensee to try to

develop theoretical sales projections, or to use market projections based on the project feasibility

study and then to reduce those projections by 20 to 40 percent to arrive at a fair, conservative

amount to be used in the agreement.

Termination of the agreement 

Termination provisions vary widely. They can be limited to expiration or invalidity of the

patents, to a definite time period for know-how and/or to breach of the agreement by either party.

With respect to breach or default, it is common to provide that the licence can be terminated if 

the breach or default is not cured within a 60-day period following notice of the offence. Breach

or default is usually determined in arbitration.

Often the agreement will include specifically the following conditions as cause for

termination: overdue payments; bankruptcy, receivership or insolvency; change of control.

Overdue payments 

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If a payment remains overdue for a set period, such as 60 or 90 days, the licensor will

usually have the right to terminate the agreement without resort to arbitration. In some countries,

this does not apply if the overdue payment is caused by a temporary banking or government

problem.

 Bankruptcy, receivership or insolvency 

Bankruptcy or receivership may also be cause for termination. Should proceedings take

place, by or with the consent of the licensee, that prevent the licensee from paying royalties or

implementing the licensed technology, and should these proceedings remain in effect for a

specified length of time, such as 60 days or more, the licensor may wish to have the right to

terminate at the end of the specified time period. The licensee, at the same time, should push for

a longer period of at least 6 months and also try to make this provision reciprocal.

Change of control 

With the great rise in merger and acquisitions activity around the world, the change of 

control provision has become very important to licensors. They have become wary that their

technology might inadvertently fall into competitor’s hands by that route. Although this concer n

is certainly valid, the licensee must be careful to avoid losing the technology too easily in case of 

acquisition. The following provisions will demand skilful negotiation and review by the

licensee’s legal advisor. 

A licensor in a strong position may want to have a change of control provisions such as

the following :

If during the term of the agreement the licensee sells that part of his operations that is

significant to the licensed technology, a third party acquires that part of the licensee’s operations,

or if a competition of the licensor takes an equity position of sufficient percentage in the licensee

or is able to obtain access to the licensed technology in any other way, the licensor will have the

right to terminate the licence within a period of 90-120 days.

The licensee, however, should negotiate to have the provision apply only if acquiring

firm is a competitor of the licensor. Then, what constitutes a competitor has to be a defined in the

licence agreement.

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Export control 

If the technology or products made under a licence are considered sensitive or if they

might be utilized in countries to which the licensing country restricts exports, the licensor will

require a clause to assure that such restrictions are not violated. The provision should specificallyprohibit the licensee from exporting or re-exporting any of the licensed know-how,

improvements, other technical information or products to any such countries, without prior

authorization from relevant authority of the licensing country’s. 

Arbitration and applicable law 

Arbitration is being used more and more frequently as a means to resolve licence

agreement disputes because it is usually faster, much less costly and more amicable than

lawsuits.

The arbitration clause of engagement is usually very broad. It frequently provides for any

dispute arising from or relating to the licence to be settled by arbitration. A more limited clause,

however may be acceptable. Often, unless prohibited by the applicable law the parties will

specifically exclude disputes concerning antitrust laws, export control laws, the validity or

alleged infringement of patents and royalty rates or other payments stipulated in the agreement.

The parties generally specify that the arbitration procedure be in accordance with the

rules of an arbitration association appropriate to the geographic areas of the agreement. Although

there appears to be a trend toward selecting one impartial arbitrator, in most agreements it is still

common to have three arbitrators, one from each party’s country and the third from a different

country. Naming the language to be used in the proceedings is also advisable.

There are many subtle points to consider in writing arbitration and applicable law clauses.

Patent laws differ around the world. The use of discovery in arbitration can be limited and the

generally accepted procedures for arbitration are changing. The licensee and licensor are advised

to have legal counsel study the circumstances for each licence carefully before deciding on the

most appropriate provisions for such clauses.

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Dynamism of INTERNATIONAL Economic Environment:

Study of economic environment:

•  Nature & Structure of Economy

•  Economic Conditions and Indicators

•  Economic Planning, Policies and Programs

•  Global Linkage

I. Nature & Structure:

A. Economic Classification:

Incidentally, World Bank figures show that the world's GDP is at $54.347 trillion. India accounts

for just over 2 per cent of global GDP

The World Bank has classified the economies of the world on the basis of income and region

for the year 2006. This is a classification of all the member countries of the World Bank  and

other economies with populations more than 30,000. The groups made are as follows:

•  Lower Income Economies (with $825 or less)

•  Lower Middle Income Economies (With $826-3,255)

•  Upper Middle Income Economies (With $3,256-10,065) and

•  High Income Economies (With $10,066 or More)

(Classification is made among the income groups as to 2004 GNI per capita and regions by

using the World Bank Atlas Method.)

B. Economic Development Modes (Structure)

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•  Market Economy: A system  of allocating resources  based only on the interaction of 

market  forces, such as supply  and demand. A true market economy  is free  of 

governmental influence, collusion and other external interference. A market economy or

free market economy is an economic system in which the production and distribution of 

goods and services  take place through the mechanism of  free markets  guided by a free

price system. In a market economy, businesses and consumers decide of their own

volition what they will purchase and produce, and in which decisions about the allocation

of those resources are without government intervention. In theory this means that the

producer gets to decide what to produce, how much to produce, what to charge customers

for those goods, what to pay employees, etc., and not the government. These decisions in

a market economy are influenced by the pressures of  competition,  supply and demand. 

This is often contrasted with a planned economy, in which a central government decides

what will be produced and in what quantities. Market economy is also contrasted with

mixed economy  where there are market operations though the markets system is not

entirely free but under some government control that is not extensive enough to constitute

a planned economy. In the real world, there is no nation that has a pure market economy.

•  Planned economy or directed economy is an economic system  in which the state  or

government manages the economy. Its most extensive form is referred to as a command

economy, centrally planned economy, or command and control economy. In sucheconomies, the state  or government  controls all major sectors of the economy and

formulates all decisions about their use and about the distribution of income, much like a

communist state. The planners decide what should be produced and direct enterprises to

produce those goods. Planned economies are in contrast to unplanned economies, such as

a market economy, where production, distribution, pricing, and investment decisions are

made by the private owners of the factors of production based upon their own and their

customers' interests rather than upon furthering some overarching macroeconomic plan.

Less extensive forms of planned economies include those that use indicative planning, in

which the state employs "influence, subsidies, grants, and taxes, but does not compel.

This latter is sometimes referred to as a "planned market economy." A planned economy

may consist of state-owned enterprises, private enterprises directed by the state, or a

combination of both. Though "planned economy" and "command economy" are often

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used as synonyms, some make the distinction that under a command economy, the means

of production are publicly owned. That is, a planned economy is "an economic system in

which the government controls and regulates production, distribution, prices, etc. but a

command economy, while also having this type of regulation, necessarily has substantial

public ownership of industry. Therefore, command economies are planned economies,

but not necessarily the reverse.

•  Mixed economy is an economic system  that incorporates aspects of more than one

economic system. This usually means an economy that contains both private-owned and

state-owned enterprises or that combines elements of  capitalism and socialism, or a mix

of  market economy  and planned economy  characteristics. There is not one single

definition for a mixed economy, but relevant aspects include: a degree of private

economic freedom  (including privately owned industry) intermingled with centralized

economic planning  (which may include intervention for environmentalism  and social

welfare, or state ownership of some of the means of production).For some states, there is

not a consensus on whether they are capitalist, socialist, or mixed economies. Economies

in states ranging from the United States to Cuba have been termed mixed economies.

• • •  SOCIO-CULTURAL ENVIRONMENT:

Social organisation

Social organization refers to the ways in which people relate to one another, form groups and

organize their activities, teach acceptable behavior and govern themselves. It thus comprises the

social, educational and political systems of a society.

The exporter's ability to communicate depends to some extent, on the educational level of the

foreign market. If the consumers are largely illiterate, advertising materials or package labels

may have to be adapted to the needs of the market. In this regard, however, a company marketing

baby food in a certain African country put the picture of a smiling child on the outside of the jar.

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The local resident assuming there were preserved babies inside, avoided the product! In addition,

there are unspoken signals which identify cultural differences, from certain taboos to less

obvious practices like the time taken to answer a letter. In some societies, for instance, an

important issue is dealt with immediately; in others, promptness is taken as a sign that the matter

is regarded as unimportant, the time taken corresponding with the gravity of the issue.

In a culture where great importance is attached to the family unit, promotional efforts should be

directed at the family rather than the individual. The size of the family unit differs from one

culture to another. It can range from the nuclear family, i.e. mother, father, and children, to the

extended family which includes many relatives and whose role is to provide protection, support

and economic security to its members. In the extended family, characteristic of developing

countries, consumption decision-making takes place in a larger unit and purchasing power

patterns may be different from those evident in western cultures.

In any society, certain occupations carry more prestige, social status and monetary reward than

others. In India, for example, there is a strong reluctance amongst people with university

education to perform 'menial' tasks using their hands, even answering the telephone. In many

countries, including France, Italy and Singapore, financial independence is considered essential

for occupation-related prestige. In Japan, however, the majority of university-educated

professionals tend to prefer working for large multinational firms than for themselves.

Social organisation is also evidenced in the operation of the class system, e.g. the Hindu caste

system and the grouping of society members according to age, sex, political orientation, etc.

Religious beliefs, attitudes, values, space and time

While language, material culture, aesthetics and social organisation are outward manifestations

of a culture, it is a society's religious beliefs, attitudes and values that dictate the behaviour of its

members.

Religious beliefs

A religious system refers to the spiritual side of a culture or its approach to the supernatural.

Western culture is accepted as having been largely influenced by the Judeo-Christian traditions,

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while Eastern or Oriental cultures have been strongly influenced by Buddhism, Confucianism,

Taoism and Hinduism. Although very few religions influence business activities directly, the

impact of religion on human value systems and decision-making is significant. Thus, religion

exerts a considerable influence on people's actions and outlook on life, as well as on the products

they buy. In certain part of the world, such as Latin America, the influence of religion extends

even beyond the individual or family and is manifested in a whole community's deep

involvement in, and devotion to, the church.

A society's religious belief system is often dependent on its stage of human or economic

development. Primitive tribesmen tend to be superstitious about life in general while people in

technologically advanced cultures seem to have dismissed the notion of traditional religious

worship and practice in favour of a more scientific approach to life and death.

To disregard the significance of religious beliefs or superstitions evident in a potential export

market could result in expensive mistakes.

The failure to consider specialised aspects of local religions has created a number of difficulties

for firms. Companies have encountered problems in Asia when they incorporated a picture of a

Buddha in their promotions. Religious ties are strong in this area, and the use of local religious

symbols in advertising is strongly resented - especially when words are deliberately or even

accidentally printed across the picture of a Buddha. One company was nearly burned to the

ground when it ignorantly tried such a strategy. The seemingly minor incident led to a major

international political conflict remembered for years.

(Source : D.A. Ricks, Big business Blunders)

Attitudes 

Attitudes are psychological states that predispose people to behave in certain ways. Attitudes

may relate, for example, to work, wealth, achievement, change, the role of women in the

economy, etc.

Western cultures, for example, value individualism and promote the importance of autonomy and

personal achievement needs. In contrast, in many eastern and developing countries, there is a

strong sense of collectivism and the importance of social and security needs. For instance, the

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Hindu religion imparts a type of work ethic that considers work central to one's life but maintains

that it must be performed as a service to others, not for one's own personal achievement.

Stereotypes are sets of attitudes in which one attributes qualities or characteristics to a person on

the basis of the group to which that person belongs. An international businessperson's tendency

to judge others by his or her personal and cultural standards instead of attempting to understand

others in the context of their unique historical, political, economic and social backgrounds could,

for example, be termed an undesirable attitude.

Values

Values are judgements regarding what is valuable or important in life, and they vary greatly from

one culture to another. People who are operating at a survival level will value food, shelter and

clothing. Those with high security needs, on the other hand, may value job security, status,money, etc. From its value system, a culture sets norms, i.e. acceptable standards of behaviour.

Pepsodent reportedly tried to sell its toothpaste in regions of south-east Asia through a promotion

which stressed that the toothpaste helped enhance white teeth. In this area, where some local

people deliberately chewed betel nut in order to achieve the social prestige of darkly stained

teeth, such an ad was understandably less than effective. The slogan "wonder where the yellow

went" was also viewed by many as a racial slur.

Some time ago, an American lost a major contract in Greece because he did not appreciate theGreek concept of time. The Greek executive could not understand the American's insistence on

setting time limits on the length of their business meetings - he and his colleagues were prepared

to spend as much time in discussion as they felt was necessary. The American also insisted that

the senior managers involved in the transaction be responsible only for working out the general

principles of the deal, with the actual details being left to subordinates. Suspicious that this

represented a lack of commitment on the part of the American, the Greek called off the deal.

Many factors continuously produce cultural changes in a society - new technology, populationshifts, availability of scarce resources and changing values regarding the role of education or

women. Culture is thus dynamic, and exporters, particularly those involved in international travel

and marketing, need to regularly assess what new products and service needs have been created,

who the potential buyers

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Language 

Language is central to the expression of culture. Within each cultural group, the use of words

reflects the lifestyle, attitudes and many of the customs of that group. Language is not only a key

to understanding the group, it is the principal way of communicating within it.

A language usually defines the parameters of a particular culture. Thus if several languages are

spoken within the borders of a country, that country is seen to have as many cultures. In Canada,

for instance, both English and French are spoken; in Belgium, French and Flemish; while in

South Africa there are 11 official languages with a number of other African languages also

spoken by the population. In addition, there are often variations within a language - different

dialects, accents, pronunciations and terminology may distinguish one cultural group from

another, e.g. English-speaking South Africans, the British, Americans and Australians.

Learning some of the subtleties of a language can assist greatly in avoiding confusion:

Several brief examples of mistranslated English idioms or expressions can be cited to illustrate

how often blunders have been made. One European firm certainly missed the point when it 

translated the expression "out of sight, out of mind" as "invisible things are insane" in

Thailand. There is also the story of the phrase "the spirit is willing, but the flesh is weak" being

translated to "the liquor is holding out all right, but the meat has spoiled". And consider,

inally, a translation of "Schweppes Tonic Water" to the Italian "ii water". The copy was

speedily changed to "Schweppes Tonic" because 'il water" idiomatically indicates a bathroom.  

(Source: D A Ricks, Big Business Blunders) The importance of being able to understand other languages cannot be over-emphasised - this is

particularly relevant when executives travel abroad and are negotiating with people of different

language groups. Because English is the predominant language of business in the western world,

people with English as a home language are usually reluctant to learn foreign languages and tendto expect others to converse with them in English. In contrast, European and Far Eastern

businesspersons have been willing to learn and converse in the language of their trading partners,

leading inevitably to a better understanding and better rapport between the parties concerned. If 

exporters do not speak the language of the country they plan to visit, they should at least

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establish the extent to which their own language is spoken there and, if necessary, engages the

services of an interpreter during discussions or negotiations.

If promotional material needs to be prepared in a foreign language, it is important to ensure that

none of the meaning is lost or distorted when the information is translated. Thus, translations

should be undertaken within the country concerned or at least by a native of the country in

question.