Global Business Environment and Business Ethics
World business environment is the environment in the different countries with all the external factors be it technological, economical, etc which have an effect on the functioning of the business.
- It is the source of interconnectivity b/w various countries leading to the flow of capital, services and ideas
- Offers consumers multiple choices
- Leads to the acquisition of a large variety of products
- Creates a flow of labor, capital and technology
- Provides employment opportunities
- Distributes resources, makes advantageous choices and shifts activity to a global level
The scope of Global business :
Global business has a vast scope as it focuses on the issues and opportunities that are in the business environment as the organization is operating on a global scale. The firm operates in highly ambiguous environments where rules are often subject to change such as the legal system, foreign exchange markets which can, in turn, affect the company’s position globally and also affects the profits to be generated
Profit: Expanding worldwide in order to make more opportunities for selling the products as they may be attractive to the foreign markets
The growth of the business: As there is slow economic growth opening out in the domestic market is difficult so major growth could be through expanding operations overseas
Competitive advantage: Increase in production at a lower unit cost
Power: To have competitive positioning in the face of the risk from rivalry or changes in the government policies
Employee satisfaction and development: With the expansion of the firm the employee get motivated to work harder and more job opportunities are created and positions are made available which would lead to the development of the employee
Product and services: Firm will be able to provide quality products over the globe with the lesser cost of production and more number of units and will create job opportunities
Service to society :
Firms help supply goods and services
in creating jobs for the for everyone be it the customers, suppliers, etc
provides sustainable and environmentally friendly products
Factors affecting the business environment
To understand the effect of external factors, pestel analysis is done by the firms where every key factor is identified and explained which is affecting the performance of the firm.
- Political and legal environment :
As every country has its own set of rules and regulations so the firm has to act accordingly. Some countries have stronger regulations to protect consumer interests, a certain standard of the product has to be maintained in order to be marketed in a specific country. political stability is directly related to the economic growth of the firm so have to place with caution
- Economic :
All business whether domestic or international are affected by the economic conditions present in the prevalent market
- Demand and supply :
Two important factors affecting the business - demand and supply. Demand is how willing the customer is to buy the product offered by the company and supply is how able the company is in order to provide the consumer needs.
- Marginal and total utility :
The decrease of utility is one of the economic factors as most organization prepare to launch a new product before its collapse.
- Money and banking :
Monetary and fiscal policies by the bank's effects both the economic environment and the consumers of the business. The monetary policy transmission mechanism should be smooth.
Other factors are income and employment of the particular region, general price levels, trade cycles, inflation, etc
- Social factor :
The social factors include the traditions, customs and beliefs of the population the firm is targeting in a given country which affects the decision making of the firm and has to place their products in such a way that they don’t affect any of the factors
- Technological factor :
It acts as an important tool for improving the operations and functions of the firm and helps in cost cutting of the product. It can have some negative impacts on business such as brick and mortar.
advancement in technology also helps in creating a strong customer base and have reduced the ways of storing the data. it has brought a transformation in developing market strategies and the factors helpful in this process are the internet for providing the platform and the automated process which helped in replacing human unskilled tasks with machinery ones
- Environmental factor :
The elements present in the demographic, cultural, physical environments which influence the growth, operations and management of an organization. The firm has no control over the external environmental factors be it the climate change or pollution .the firm should move towards sustainable development and environmentally friendly products
- Internal Environment:-
To understand the effect of internal factors porters five force model is done by the firm to identify all competitive forces that shape the strategies and also to analyze the industry in which the firm operates.
- Rivalry: As there is a vast number of companies doing the same business has to face severe The intensity of rivalry affects the prices, improvement in services and introduction of new products and benefits the consumer the most.
- Buyer power: It deals with the capability of the buyers to bring down the prices and is affected by the number of buyers and customers the company has. It depends on how significant their customer is and the smaller the client base, the more power is available in their hands.
- Supplier power: This force deals with the capability of the suppliers to drive up the prices of the goods and Delay in the supply or out of stock can act as constraints in the business.
The number of suppliers the company has the less it depends on the supplier and more power the company holds. The total cost incurred by the company to switch from one supplier to the other.
- New entrants: This force deals with the capability of the new entrants to improve the productive capacity serving the market, to increase market share that puts pressure on prices, costs and to bring new resources to the This threat puts a cap on the profit potential of the firm in a given industry
- The threat of substitute products: This force deals with the substitutes which perform similar functions as the company does thus limiting the company profit potential by putting an on prices
Global strategy formulation
It is done in three stages
Stage 1: nonviolent response
importing and exporting
Stage 2: original entry
hiring foreign delegations and contracting with manufactures
Stage 3: fully establishing operations
licensing / franchising
FDI ( joint ventures, subsidiary )
GLOBAL BUSINESS ETHICS
It is the study of the appropriate form of business policies and practices regarding potential issues such as corporate authority, bribery, discrimination, etc. That govern the actions of an organization. Certain ethical practices in one country may be unethical in the other country
Importance of business ethics :
- Business stakeholders have high expectations from the company and failure to live up to its reputation can act upon it, which takes up a time to reassemble but can be damaged in a short amount of It can affect the customers, morale of the employees and also in the capital markets. Even where a company has done nothing to advocate the attack on its reputation.
- The standards of conduct should be higher than the required given by law to avoid reputational Failure in obeying the law will be considered unethical. The reputation of the company can be damaged by other risk areas such as the actions taken by the third party.
- Partnerships play an important in role in expanding the business so in order to have a company should have a good reputation in the marketplace which must be built on a strong ethical foundation.
- Following good ethics will lead to satisfaction in the mind of the ones following it and will feel good doing at doing something that is morally sound.
Sources of ethical issues:-
Employment practices: The condition in the host country may be much minor to those of the multinationals home nation. Suggestions were made that the pay scale and working conditions need to be similar across nations
Human rights: It is still one of the major issues in global business as basic human rights are still denied in many nations. Job promotions are preferred on the basis of the color of the skin or giving preference to their own country members and not to the ones who deserve it.
Environmental pollution: The condition in the host nation maybe minor to those in of the multinationals native nation, ethical issues may arise. Many nations have rules and regulations regarding the emission of the pollutants, dumping of toxic waste and so on. While developing nations maybe not be so stringent with these rules and it may then result in an increased level of pollution in the environment due to the operations of the multinational cooperations
Corruptions: It still is one of the major issues in every society present in the world. businesses on a global level tend to gain the advantage of both finical and business by bribing the government officials which are present in every country which is not an ethical thing to do
Moral obligations: The MNC’s are entitled to the social responsibility to give back the resources to the society as the business should consider the social emanation of their actions and make meaningful decisions and donations if it is large.
Elements of ethical behavior
Personal ethics: It exerts a major influence on business ethics as they both are directly proportional to each other. An individual with the active intuition of personal ethics is less presumable to behave in an unethical manner in a business environment. personal ethics come from various sources like family, friends, religion and the media.
Decision-making process: Decisions making have an impact on the organization's outcome which also has an ethical dimension. Mostly they are not taken into account such as in the case of nikes subcontracting decision. Most often they are not incorporated.
Organizational culture: Every organization has its own set of standards and ethics that has to be followed which is set by the higher officials leading to strong cultural and ethical standards. ineffective culture may lead to unethical behavior.
Unrealistic goal setting: A lot of pressure can be put on the employees by the organization to achieve unrealistic goals which can only be achieved by taking shortcuts or acting in an unethical manner. The organization could just reinforce the need for ethical behavior.
Leadership: Being the leader has a very important role to play as he is the one who drives the organization towards success by demonstrating ethical ways of doing it so that they can follow their leader. It can improve the creditability of the company.
Outlook towards business ethics
There are several outlooks to business ethics
Straw men :
Business ethics scholars raised these approaches to show how inappropriate guidelines were there in making ethical decisions in a multinational enterprise.
The Friedman doctrine: The basic idea was to utilize resources and engage in activities that boost the profits of the organizations as long as it is within the rules of law and rejects to undertake any social expenditure.
Cultural relativism: The basic idea is to take up the ethics of the culture in which the firms operating in as ethics are the reflection of the culture.
The righteous moralist: The basic idea is that the standards followed in the home country should be appropriate for the ones in foreign countries.
The naive immoralist: The basic idea is that the firms of other nations are not following the criteria in a host nation then the firm should also not follow it.