International Business and Economic Environment
International management is the management of business operations conducted in more than one country. The fundamental tasks of business management including the financing production and distribution of products and services, do not change in any substantive way when a firm is transacting business across international borders. The basic management functions of planning, organizing, leading and controlling are the same whether a company operates domestically or internationally. However, managers will experience greater difficulties and risks when performing these management functions on an international scale. For example,
1) When US chicken entrepreneur Frank Purdue translated successful advertising slogan into Spanish it takes a tough man to make a tender chicken came out as It takes a virile man to make a chicken affectionate.
2) It took McDonald’s more than a year to figure out that Hindus in India do not eat beef. The company’s sales took off only after McDonald’s started making burgers sold in India out of lamb.
3) In Africa the labels on bottles show pictures of what is inside so illiterate shoppers can know what they’re buying. When a baby food company showed a picture of an infant on its label, the product didn’t sell very well.
4) United Airlines discovered that even colors can doom a product. The airline handed out white carnations when its started flying from Hong Kong only to discover that to many Asians such flowers represent death and bad luck.
Some of these examples might seem humorous but there’s nothing funny about them to managers trying to operate in a competitive global environment. Companies seeking to expand their international presence on the internet also can run into cross cultural problems, as discussed in the unlocking creative solutions through Technology Box. What should managers of emerging global companies look for to avoid obvious international mistakes? When they are comparing one country with another the economic, legal, political and social, cultural sectors present the greatest difficulties.
The economic environment represents the economic conditions in the country where the international organization operates. This part of the environment includes such factors as economic development, infrastructure, resource and product markets; and exchange rates, each of which is discussed in the following sections. In addition factors such as inflation, interest rates, and economic growth are also part of the international economic environment
Economic development differs widely among the countries and regions of the world. Countries can be categorized as either developing or developed. Developing countries are referred to as less developed countries (LDCs). The criterion traditionally used to classify countries as developing is per capita income, which is the income generated by the nation’s production of goods and services divided by total population. The developing countries have low per capita incomes. LDCs generally are located in Asia, Africa, and South America. Developed countries are generally located in North America , Europe and Japan.
Most international business firms are headquartered in the wealthier, economically advanced countries, However, smart companies are investing heavily in Asia, Eastern Europe and Latin America. For example the number of Internet users and the rate of e-commerce in Latin America is rapidly growing. Computer companies have launched on line stores for Latin American customers to buy computers over the Internet. American Online sees Latin America as crucial to expanding its global presence, even though Universe Online International (UOL) based in Brazil got a tremendous head start over AOL. These companies face risks and challenges today, but they stand to reap huge benefits in the future.
A country’s physical facilities that support economic activities make up its infrastructure which includes transportation facilities such as airports highways, and railroads, energy producing facilities such as utilities and power plants and communication facilities such as telephone lines and radio stations. Companies operating in LDCs must contend with lower levels of technology and perplexing logistical distribution and communication problems. Undeveloped infrastructures represent opportunities for some firms, such as United Technologies Corporation based in Hartford, Connecticut whose business include jet engines air conditioning and heating systems and elevators.
Excerpts from Richard L Daft