International Business Environment and Global Strategy
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 6, 2021
International Business Environment and Global Strategy
The subject of ethical codes and CSR crystallizes many social challenges. At the one
extreme are those who, like Milton Friedman (1970/2001), advocate the guiding principle of
shareholder value maximization as the sole determinant of managerial decisions. At the
other extreme are those who expound an altruistic philanthropy based on philosophical
beliefs concerning universal ethics, such as those related to human rights. Within this range
of perspectives, many authors offer distinct typologies for analyzing social forces and for
developing appropriate firm responses to each set of social forces. Meanwhile, the rise of
activist groups who threaten public criticism and boycotts means that even Friedman’s
dictum of maximizing shareholder value now requires a wide range of CSR strategies.
Some analysts, such as Porter and Kramer (2006), believe that each firm should create a
competitive advantage through appropriate CSR strategies. From this perspective, CSR
morphs into political strategies through which a firm’s reactions can be designed in order to
achieve desirable government decisions. For multinational enterprises (MNEs), it is clear
that CSR has become a subject of major importance, but the complexity of dealing with
social forces that differ among nations has created uncertainties about the optimal
strategies. The pursuit of least-cost alternatives in each country conflicts with the objective
of creating globally consistent strategies.
Meanwhile, international NGOs and national governments are negotiating CSR
agreements to create global standards. For the MNE, corporate governance with division of
responsibilities between the parent and its subsidiaries adds confusion to the
implementation of global strategies and adds difficulties to the creation of appropriate
procedures for global reporting and enforcement. CSR has become a central management
issue in a world where public expectations, legal requirements, and social needs all differ
significantly among nations and where the MNE must continually reconcile its universal
ethical positions with nation-specific realities.
A major force underlying the CSR challenges in international business is the difference
in culture among countries. The impacts of cultural differences extend beyond CSR to
include the business behaviour of local management and employees, as well as the
preferences of consumers. For the MNE, there are advantages in creating a globally
consistent set of organizational structures and incentives and a unified marketing program.
Yet there may be many instances where exceptions geared to the local culture may be most
effective. Countless articles have utilized the typology created by Hofstede and Bond (1988)
in order to analyze the implications of cross-country cultural differences for management
decisions. On the basis of extensive surveys, Hofstede and Bond conclude that each
country’s culture can be best examined in accordance with five dimensions:
individualism/collectivism, uncertainty avoidance, power distance, masculinity/femininity,
and long-term versus short-term orientation. Not only do cultural differences impact CSR,
they also impact consumer preferences and marketing, as well as structures within firms
and industries. For example, cultures differ in regard to the weight they place on attributes
such as quality, privacy, service reliability, the introduction of breakthrough services, and
the means of consumer communication with the firm. The retail MNE in particular must
create an international expansion strategy on a country-by-country basis, focusing on
differences in consumer preferences and the need for market segmentation.
For many cultures, personal relationships are built on an ongoing exchange of favours.
Personal relationships and trust form a central determinant of success, both within the firm
and in its external interactions. In China, the pervasive importance of guanxidemonstrates
the benefits that MNEs derive from developing ongoing and long-term exchanges of favours
that link individuals, as well as the organizations in which they work. Government approvals
can be expedited, and informal preferences can place an MNE ahead of its competitors.
Furthermore, without a tradition of business jurisprudence, rapid contract enforcement may
become impossible with the result that one must rely on personal relationships to cope with
misinterpretations and misunderstandings.
Continual changes in the environment of business may require ongoing renegotiation
of contracts—a process that may be most effective in the context of longstanding personal
relationships and trust. The literature on joint ventures and strategic alliances repeatedly
emphasizes the need to create procedures for decision making that are conducive to the
building of trust among firms. These behavioural characteristics may be more significant in
predicting the degree of success than any structural or organizational features among firms.
Yet the exchange of personal favours may raise questions related to ethics.
Personal relationships that involve an ongoing exchange of favours may be criticized as
petty corruption that can pervade all types of business transactions, both between firms and
also with government employees. While some of this bribery can simply expedite decisions
and actions, other situations may involve a distortion of business outcomes. Meanwhile,
government officials in positions to alter the firm’s overall profitability may receive
substantial payments. Funds that rightfully belong to the public may be diverted into private
hands.
Firms that would have paid fees to the government may be able to reduce their
financial obligations. Corruption distorts free market outcomes, resulting in business and
government decisions that reduce efficiency and so reduce a nation’s aggregate production.
Some investors may reject potential business dealings in certain cultures because of the
presence of corruption. Recent years have witnessed global attempts to reduce corruption,
and many nations now treat corruption as a crime. In this context, management encounters
issues that challenge ethical positions and that involve risks of legal prosecution, as well as
impacting potential profits.
Managers today must be continually concerned about preventing fraud. New
governmental reporting requirements seek to enhance transparency and accountability.
New legal provisions increasingly add to the responsibility of boards of directors in providing
accurate information to investors. At the core of these concerns is the need to develop a
corporate culture that provides ethical guidelines to all the firm’s employees so that
decisions throughout the firm are socially acceptable.
For the MNE, these issues are linked in a host of multidimensional decisions that
require ongoing responses, hopefully within a consistent set of strategies that create a
competitive advantage while maintaining an ethical code of conduct. Social forces are
changing as the MNE confronts these issues. People throughout the world are now watching
the same television and movies, reading the same books, purchasing globally branded
products, and communicating via the Internet.
For many, there is now an ongoing adaptation to global norms and values. Migration is
creating new international relationships that may alter cultures in both the old home
country and the new. Much of the academic literature has ignored youth’s rapid degree of
adaptation to the realities of cultural differences, as opposed to the intransigence of older
groups in this regard. As the years go by and the youth age, each national culture will likely
be modified. Changes in each nation’s demographic profile over time can also impact
certain cultural characteristics. Meanwhile, there is an ongoing interplay between social
forces and other forces—with an ongoing modification of many other elements in the
environment of business.
Technological Forces
Among cultural differences, the role of personal relationships and trust is a key
determinant of the nature and extent of social capital, linking these cultural differences to
their implications for entrepreneurship. While physical capital obviously differs among
countries, the more ephemeral social capital also differs among cultures. Social capital has
important implications for managerial decision making, particularly in relation to innovation
and entrepreneurship. Networks based on personal relationships and ethnic trust can
facilitate business transactions and risk taking.
Social capital impacts the degree of cooperative behaviour that the firm can expect
from its employees, as well as its customers, government agencies, and other stakeholders.
Hence, it influences the firm’s ability to develop new forms of value creation. Social capital
can play a key role in market entry decisions and in the creation of new products, services,
or procedures. Firms differ in their ability to utilize social capital within each culture, so the
enhancement of a firm’s ability in this regard may lead to a competitive advantage for the
firm.
Many authors use the social capital perspective to analyze differences among countries
in regard to economic growth and the productivity improvements that drive growth. For the
World Bank, this subject has been the focus of considerable research—much of it linking
social capital with human capital. Cultures differ in regard to the degree to which they
encourage and reward risk taking and innovation. These differences impact a country’s
legal, financial, fiscal, and education systems. For the MNE, an understanding of these
cultural differences is essential in reaching optimal investment decisions and business
practices.
Until recent decades, innovations were generally created as responses to specific
challenges within particular circumstances. The printing press, for example, resulted from a
desire to improve on the time-consuming process of writing by hand. The steam engine
resulted from a desire to increase efficiency in the removal of water from mines and to
achieve a more rapid pace than that of horses. Often, the innovation process then involved
the diffusion of such technological breakthroughs to additional uses. Many business
opportunities grew out of the array of potential applications related to a single basic
concept.
While this process is still prevalent in today’s business environment, what is new is the
creation of innovation procedures that aim to achieve continual cost reductions and
improvements in products and services. What is new is the conscious pursuit of knowledge
that can lead to ongoing competitive advantages for the firm. What is new is the
development of a learning organization whose culture and practices are designed to
stimulate and facilitate the innovation process on a continual basis.
This vision of the firm often includes the involvement of all of the firm’s employees, as
well as the involvement of customers and suppliers throughout the value chain. For many
firms, this vision also includes new partnerships, particularly with universities and
government research institutes. This pervasive impact of technological forces has created
new paradigms for strategies and management. New success indicators relate to the firm’s
capability in acquiring and managing knowledge. A “balanced scorecard” includes more than
just financial results, and intellectual capital focuses on the firm’s strategy for building and
managing its knowledge activities.
Each nation, and each region within each nation, has its own unique innovation system
that forms a key component of the environment of business. These innovation systems
differ significantly, with some offering distinct advantages for the firms located there. This
reality rests to a large degree on culture, social capital, education, and entrepreneurship.
For each nation or region, a set of crucial characteristics includes the nature and strength
of attitudes toward risks and rewards, the entrepreneurial quality of university relations
with businesses, the willingness of all members of a value chain to become partners in the
pursuit of knowledge, and the extent to which innovations within the financial system
support this process. Current success creates conditions that support future success in
repeated cycles of new technological advances, each of which may move from the research
phase to widespread diffusion throughout the economy.
The United States has attained a position of global leadership in the new knowledge
economy. Some Western European countries have also attained outstanding success. For
much of the rest of the world, a central question relates to their capacity to adopt the
technological advances of the United States and Western Europe. The motivations and
procedures for technology transfer have become an essential element in the growth
prospects of less developed nations. The linkages between international investments and
the advanced technologies that are embodied in these investments place the MNEs at the
center of this subject. MNEs may regularly transfer the manufacture of new products from
the developed nations to the less developed nations in order to reduce costs through
payment of lower wage rates. Many governments of developing nations wish to break out
of this product cycle by creating their own innovation systems through investments in
universities and research institutes. However, much must first be transformed within a
nation’s social, economic, and political forces in order to create an innovation system.
Advances in information technology have combined with innovations in
microelectronics to create a host of new opportunities for e-business activities in every
business sector. The Internet has become the new infrastructure that can reduce costs,
improve communication, and enhance management practices. Porter (2001) has
emphasized that,
