Definition
A
set of beliefs, customs, practices and behavior that
exists within a population. International companies often
include an examination of
the socio-cultural environment prior to
entering their target markets
The implications of
government ownership to a company marketing abroad might be that certain
sectors of the foreign market are the exclusive preserve of government
enterprise or that the company is obliged to sell directly to a state trading
organisation. In either case, the company's influence on the market is
greatly reduced. Similarly, if an exporter is seeking to establish a
subsidiary in a country where there is a high degree of state influence over
the factors of production, the investor should bear in mind that marketing
activities in the country concerned may be restricted and that the so-called
controllable elements of the marketing mix (see Chapter 4) will be less
controllable.
Of primary concern to
an exporter should be the stability of the target country's political
environment. A loss of confidence in this respect could lead to a company
having to reduce its operations in the market or to withdraw from the market
altogether. One of the surest indicators of political instability is a
frequent change in regime. Although a change in government need not be
accompanied by violence, it often heralds a change in policy towards
business, particularly international business. Such a development could
impact harshly on a firms long-term international marketing programme.
Reflected in a
government's attitudes and policies towards foreign business are its ideas
about how best to promote national interest in the light of the country's
economic and political resources and objectives. Foreign products and
investment seen to be vital to the growth and development of the economy
often receive favourable treatment from the government in the form of reduced
tax, exemption from quotas, etc. On the other hand, products considered by a
government to be non-essential, undesirable, or a threat to local industry
are frequently subjected to a variety of import restrictions such as quotas
and tariffs. It is also important to be aware of the nature of the
relationship between South Africa and the foreign target market. This was a
major consideration during South Africa's political isolation. Fortunately,
South Africa's international relations have normalised and today South Africa
is viewed very favourably, from a political perspective, by the rest of the
world.
The political environment
is connected to the international business environment through the concept of
political risk.
Political risk
Political risk is
determined differently for different companies, as not all of them will be
equally affected by political changes. For example, industries requiring
heavy capital investment are generally considered to be more vulnerable to
political risk than those requiring less capital investment. Vulnerability
stems from the extent of capital invested in the export market, e.g.
capital-intensive extracting or energy-related businesses operating in the
foreign market are more vulnerable than manufacturing companies exporting
from a South African base.
Political risk is of a
macro nature when politically inspired environmental changes affect all
foreign investment. It is of a micro nature when the environmental changes
are intended to affect only selected fields of business activity or foreign
firms with specific characteristics, (possibly by expropriation).
When business is
conducted in developing countries, the risks of greatest concern are civil
disorder, war and expropriation. When business is conducted in industrialised
countries, labour disruptions and price controls are generally seen to pose
the greatest threats to a company's profitability.
All organisations
doing business abroad should be aware of the fact that what they do could be
the object of some political action. Hence, they need to recognise that their
success or failure could depend on how well they cope with political
decisions, and how well they anticipate changes in political attitudes and
policies.
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Most issues in the
legal/political environment centre around the following:-
i) "Institutional
environment" - made up of political, social and legal ground rules within
which the global marketer must operate.
ii) Property rights -
patents, trademarks.
iii) Taxation - what
taxation schemes will be faced abroad?
iv) Recourse -
possibility and length of action with the possibility of image damaging
necessitating arbitration.
v) Movement of equity
and expropriation threats - often necessitating protocols or the signing of
trade frameworking agreements.
Efforts to regulate the
international legal system include individual country efforts, like the USA
International Trade Commission and the GATT system. The GATT system is a set of
norms and procedures which member governments have accepted to create order and
predictability in international trade relations.
Technology can be
defined as the method or technique for converting inputs to outputs in
accomplishing a specific task. Thus, the terms 'method' and 'technique' refer
not only to the knowledge but also to the skills and the means for
accomplishing a task. Technological innovation, then, refers to the increase in
knowledge, the improvement in skills, or the discovery of a new or improved
means that extends people's ability to achieve a given task.
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High technology has
become like a force of nature. It transforms the economy, schools, consumer
habits, the very character of modern life. Investors pour money into it;
parents urge their children to study it; communities vie to attract its
factories; decorators adopt it as a style; politicians push it as a panacea.
(Source : Science Digest Magazine) |
Technology can be
classified in several ways. For example, blueprints, machinery, equipment and
other capital goods are sometimes referred to as hard technology while soft
technology includes management know-how, finance, marketing and administrative
techniques. When a relatively primitive technology is used in the production
process, the technology is usually referred to as labour-intensive. A highly
advanced technology, on the other hand, is generally termed capital-intensive.
Changes in the
technological environment have had some of the most dramatic effects on
business. A company may be thoroughly committed to a particular type of
technology, and may have made major investments in equipment and training only
to see a new, more innovative and cost-effective technology emerge.
Indeed, the managing
director of a multinational organisation manufacturing heavy machinery once
said that the hardest part of his job had nothing to do with unions, pay or
products, but with whether or not to spend money on the latest technologically
improved equipment.
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Computer technology
has had an enormous impact on education and health care, to name but two
areas affected. The advancements in medical technology, for example, have
contributed to longevity in many societies. In addition, the introduction of
robots in many factories has reduced the need for labour, and the use of
VCR's and microcomputers has become commonplace in many homes and businesses.
Unfortunately, there
is a negative side to technological progress. The introduction of nuclear
weapons, for example, has made the destruction of the human race a
frightening possibility. In addition, factories using modern technologies
have polluted both air and water and contributed to various environmental and
health-related problems.
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Technology is a critical
factor in economic development. Because of the advances of international
communication, the increasing economic interdependence of nations, and the
serious scarcity of vital natural resources, the transfer of technology has
become an important preoccupation of both industrialised and developing
countries. For many industrialised countries, the changes in the technological
environment over the last 30 years have been immense particularly in such areas
as chemicals, drugs, and electronics. It is vital that organisations stay
abreast of these changes - not only because this will allow them to incorporate
new and innovative designs into their products, but also because it will give
them a firmer base from which to anticipate and counteract competition from
other organisations.
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When
the Gillette company developed a superior stainless steel razor blade, it
feared that such a superior product might mean fewer replacements and sales.
Thus, the company decided not to market it. Instead, Gillette sold the
technology to Wilkinson, a British garden tool manufacturer, thinking that
Wilkinson would use the technology only in the production of garden tools.
When Wilkinson Sword Blades were introduced and sold quickly, Gillette
understood the magnitude of its mistake.
The
transfer of technology is essential for attaining a high level of industrial
capability and competitiveness. Multinational corporations are playing an
increasingly important role in technology transfer because they invest abroad
to expand production, marketing and research activities. There is also a
growing consciousness amongst governments of the need to increase technology
transfer to the developing countries to help stabilise their economic and
social conditions.
In
spite of the many differences in social, political, cultural, geographic and
economic conditions, there are some common characteristics in the
technological environments of developing countries. The most common
technology transfer from industrialised to developing countries has been in
agriculture and health care. As a result of improved health care systems,
infant mortality rates have been cut while the incidence of once common
diseases such as malaria and typhoid has been reduced in Latin America,
south-east Asia and Africa (although the incidents of the AIDS virus has
increased alarmingly). Similarly, agricultural technology has increased
agricultural productivity in Brazil, India and elsewhere. However, in most
developing countries, technology has made little impact on the productive
systems, income distribution and living conditions of the majority of the
population.
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Technology transfer is a
complex, time-consuming and costly process, and the successful implementation
of such a process demands continuous communication and co-operation between the
parties involved. Furthermore, technology transfer cannot be effective if it
experiences conflict with the economic and social needs of the recipient
country. The agricultural development of north-eastern Brazil, for example, was
largely financed by international banks and financial organisations in the
1960's. Much of this region had been inhabited by Brazilian aborigines but it
was owned by a small number of wealthy landowners. The introduction of
large-scale mechanical agricultural technology in areas of the tropical rain
forest of the Amazon has caused serious environmental damage such as erosion of
tropical topsoil and the destruction of the natural environment of numerous
birds and animals, and has displaced a large number of the local inhabitants of
the forests.
Technology transfer may
become a serious source of conflict between donor and recipient countries. The
recipient country may feel that the donor is trying to dominate it through
technology, capital and production. Dependence on foreign technology can be
viewed as a serious threat to economic independence. Countries that export
technology may experience different problems. For the seller of technology, the
technology transfer can result in unemployment in the home country and future
loss of technological superiority. For example, Japan transferred modern steel
production technology to South Korea in the early 1970's. As labour and
production costs in Japan increased, the Korean steel industry began to take
over a significant portion of the previously Japanese-controlled international
market. Some Japanese executives are now complaining that the cost of
technology transfer has been much greater than the income received through the
sale of technology.
Technology can be
transferred from person to person, industry to industry and government to
government, although the government of any country generally plays the most
important role in facilitating or impeding the transfer process. Contacts
amongst students from different countries are also a means of technology
transfer as are journals, books, technical and professional publications, trade
magazines and product pamphlets. Furthermore, multinational corporations play
an important role in technology transfer by transferring information and
technology from the parent company to subsidiaries in other countries, training
foreign employees, etc.
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The future
development of the international business environment depends on numerous
factors, including the political en economic environment, the development of
technology, population growth, energy availability and natural resource
depletion. It can be expected that the gap between the rich and the poor
countries will increase and that living conditions in many poor countries
will deteriorate even more. The rich countries will be obliged to extend
technology, food and financial assistance to the poor countries and people in
the advanced countries will be engaged to an increasing extend
(Source: N F Matsuura, International Business) |
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The economic
environment
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Surveys have shown
that the economic environment tends to receive the greatest amount of
attention from export planners. The primary concern in analysing the economic
environment is to assess opportunities for marketing the company's products
abroad or possibly for locating some of the company's production and
distribution facilities outside of South Africa. Indeed, when striving to
identify potential countries to focus on, one of the major differentiating
factors will be the differences in the economic environments that exist
between potential target countries.
Decisions about how
much of a product people buy and which products they choose to buy are
largely influenced by their purchasing power. If a large portion of a
country's population is poor, the market potential for many products maybe
lower than it would be if they were reasonable prosperous. If a country is
expected to enjoy rapid economic growth and large sectors of the population
are expected to share in the increased wealth, sales prospects for many
products would clearly be more promising than if the economy were stagnating.
Thus, if you are
comparing potential countries to focus your export efforts on, you must
consider factors such as the general economic outlook, employment levels,
levels and distribution of income, growth trends, etc. It should be borne in
mind, however, that when income levels drop, people will generally cut back
on their purchases of luxury items before they cut back on necessities. Thus,
poor countries which are allocating scarce foreign exchange reserves only to
necessities (e.g. cheap clothing, simple agricultural tools, etc.) may prove
to be more reliable markets than rich countries for certain export products.
Below are some of
the economic factors which should be of interest to the exporter. To learn
more about these factors, please follow the corresponding links:
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