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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.
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