International Environmental Analysis
As a organization's environment expands from domestic to international, managements face not only a larger number of environmental elements but also far greater environmental complexity.
The international environment is the interaction between (1) the domestic environmental forces and the foreign environmental forces and (2) the foreign environmental forces of one country and those of another country.
According to Richard D. Robinson, the international business differs from the purely domestic usiness because it involves operating effectively:
- within different national sovereignties;
- under widely disparate economic conditions;
- with peoples living within different value systems and institutions;
- in places experiencing the industrial revolution at different times;
- often over greater geographical distance;
- in national markets varying greatly in population and area.
Michael Porter has discussed several changing currents in international competition that have become quite strong since World War II. These changing currents serve as a background to an understanding of international competitive strategy.
According to Porter, the international environment is characterized by the following trends:
* Reduction in the differences among countries. The economic differences among developed and newly developed countries sees to be narrowing in areas like income, factor costs, energy costs, marketing practices, and distribution channels.
* More aggressive industrial policies. Governments like Japan, South Korea, and West Germany are taking aggressive postures to stimulate industry in carefully selected sectors. This policy is giving firms in such countries the support to make bold moves into new markets.
* National recognition and protecting distinctive assets. The proactive exploitation of such distinctive assets as natural resources (e.g., oil, copper, tin, rubber) by governments is a reflection of changing philosophy toward industrial policy. This trend has potentially fundamental implications for world competition.
* Freer flow of technology. The increased flow of technology from country to country tends to promote more global competition.
* Gradual emergence of new large-scale markets. China, Russia, and possibly India may ultimately emerge as huge markets in the future. Thus, gaining access to these markets may well become a crucial strategic variable in the future.
* Competition from newly developing countries. Developing countries are increasingly well prepared to make major capital investments in large-scale facilities, aggressively to seek to buy or licence the latest technology, aggressively to take enormous risk.
The net result of these changing currents has been to make the international arena a fiercely competitive marketplace in which the standards of competitive success have risen dramatically in the last few decades. There have been some cross-currents that have made the pattern of international competition very complex and different from earlier competitive strategies of the 1950s.
These cross-currents are:
- Slowing rates of economic growth
- Eroding types of comparative advantage
- New forms of protectionism
- New types of government inducement
- roliferating coalitions among firms from different countries
- rowing ability to tailor to local conditions.
Because of the currents and cross-currents, many more firms have become international in their strategies and operations. The recent strategies revolve around several themes described by Porter:
- There is no one pattern of international competition nor one type of global strategy.
- The globalization of competition has become the rule rather than the exception by 1986.
- The nature of international competition has changed markedly in the last two decades.
- Implementing a global approach to strategy requires a difficult organizational reorientation for many firms.