Global Business Environment
5. lecture
Ing. Šárka Zapletalová, Ph.D.
Department of Business Economics and Management
BUSINESS ENVIRONMENT

Outline of the lecture
1.World economy
2.
2.Elements of global business environment
3.
3.Globalization
4.
4.
4.

Introduction
•Global business environment can be defined as the environment in different sovereign countries,
with factors exogenous to the home business environment of the organization, influencing decision
making on resource use and capabilities.
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•Global business environment is the broadest business environment. Global business environment
consists of the environment of world economy.
•
•Global business environment has supranational influence on business organizations. Supranational
influence affects all business organizations in the world.
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World Economy
•The world economy includes world-wide economic activity between various subjects (countries,
organizations etc.) that are considered intertwined and thus can affect other subjects negatively
or positively.  The term world economy refers to all of the economic activities within each country
and between countries around the world.
•
•The world economy is in a process of permanent change. It makes sense that as the population of
the world has increased, and as technologies such as air travel and the Internet have made
communication between people through the world easier, that the world economy has grown.
•

World Economy
Development of world economy
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•The age of mercantilism (c1500 – 1780) – the setting of the first transoceanic trade routes led to
a remarkable expansion of the hegemony of Europe through the setting of colonial empires and their
underlying mercantilist system where trade relations were monopolized and controlled, and did not
permit mass production.
•
•The industrial revolution (c1780 – 1880) – the setting of mechanized production and distribution
systems and the emergence of industrial capitalism where mass production and consumption became a
possibility. This required the usage of a larger production unit – the factory.
•

World Economy
Development of world economy
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•The emergence of fordism (c1880 – 1970) – resulted in a capitalist system dominated by large
multinational corporations or corporations operating under a quasi-monopolistic status over their
respective economies.
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•Post-fordism (c1970 – 2010) – acceleration of globalization, particularly with the emergence of
export-oriented economies that gained from the offshoring of several manufacturing tasks and the
setting of global production networks managed by corporate systems.
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•Contemporaneity – emerging environmental and resource scarcity concerns are indicative of a
sustainable capitalism paradigm where economic activities are bound to minimize their externalities
both because of regulatory and competitive pressures.
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World Economy
Subjects of world economy
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•Subjects of a macroeconomic type
•National states;
•International integration groupings;
•International organizations.
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•Subjects of a microeconomic type
•Transnational companies;
•Small and medium-sized enterprises.
•

Elements of Global Business Environment
•Global business environment has a character of macro environment. In the global business
environment we can identify the following elements:
•Political;
•Legal;
•Economical;
•Technological;
•Social;
•Cultural;
•Demographical;
•Natural.

Elements of Global Business Environment
Global political environment
•Global political environment is made up of the various political systems under which business
operates.  Especially in the past ten years, there have been substantial political changes around
the world that have shaped business operations.
•
•Political institutions, such as governments and parliaments, set of rules or codes of behavior
that affect business are predictable and adaptable.
•
•There are main political causes of instability that affect the global business environment:
•some forms of government seem to be inherently unstable;
•changes in ruling political parties;
•extreme nationalism;
•animosity targeted toward specific countries;
•trade disputes.

Elements of Global Business Environment
Global legal environment
•Global legal environment is made up of the various legislative systems under which business
operates.
•
•Legislative institutions, such as governments and parliaments, pass laws and establish regulations
which shape the legal environment within which business operates. The courts, the police and
prisons ensure that the laws are enforced and lawbreakers are punnished.
•
•Some laws that are essential to focus on that are involved with international entrepreneurial
activities are:
•Intellectual property rights laws,
•Commercial laws within countries ;
•Environmental laws;
•Foreign countries´ antitrust laws;
•Cyber laws etc.

Elements of Global Business Environment
Global legal environment
•There is no absolute international law system, so there are many ways to handle conflict. In order
to resolve legal issues, there are three general ways to determine jurisdiction:
•on the basis of jurisdictional clauses in contracts;
•on the basis of where a contract was entered into;
•on the basis of where the provisions of the contract were performed.
•
•There are three different ways of international legal disputes:
•between governments;
•between a company and a government;
•between two companies.

Elements of Global Business Environment
Global economical environment
•The global economical environment comprises forces that affect large areas of the economy, like
the rate of economic growth, interest rates and inflation, and the policies of domestic and
international institutions that influence these economic variables.
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•Global financing operations based on the global standard gave rise to instability, so Bretton
Woods, post World War II, saw the nascence of the International Monetary Fund and World Bank. The
IMF deals with the International Monetary System. And the World Bank, or International Bank for
Reconstruction and Development, deals with international capital.

Elements of Global Business Environment
Global economical environment
•General indications of economy include population and income (distribution, per capita, GNP).
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•The World Bank classification of economies based on GNP per capita:
•Low income economies – GNP per capita income of between $675 or less, 41 nations including China,
India, Tanzania, Kenya, Zambia etc.
•Middle income economies (lower middle income) – GNP per capita of between $676 and $2.695, 40
nations including Mexico, Thailand, Zimbabwe etc.
•Upper middle income economies – GNP per capita of between $2.676 and $8.355, 17 nations including
Brazil, Portugal and Greece.
•High income economies (OECD member and others) – GNP per capita of between $8.356 or more, 24
nations including UK and the USA.

Elements of Global Business Environment
Global technological environment
•Technology refers to the know-how or the pool of ideas or knowledge available to society. Business
is particularly interested in advances in knowledge that it can exploit commercially.
•
•Technological advance has been a fundamental force in changing and shaping the patterns of
organizations as regards what it does and how it does it. It is through these technological
innovations that organizations around the world have been able to flourish.
•
•Technology is what makes economic growth and social change happen; it also help to make things
better and easier for the society.

Elements of Global Business Environment
Global social environment
•The social environment is concerned with social organization and structure of society. This
includes many social characteristics which can vary significantly from one society to another.
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•Social aspects include the distribution of income and wealth, living and working conditions,
health, education, social class, the degree of urbanization.
•
•If a company operates in a multicultural society, then the social environment is even more
complicated because the environment will consist of diverse sub-populations with their own unique
values, beliefs and customs.  A organization must be keenly aware of the society´s social
preferences regarding its needs and wants.

Elements of Global Business Environment
Global cultural environment
•The global cultural environment includes many cultural characteristics which can vary
significantly from one society to another.
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•The cultural environment cover areas like language, religion, diet, values and norms, attitudes,
beliefs and practices, social relationships, how people interact and lifestyles.
•
•Responding to cultural differences, whether that is producing packaging in various languages or
changing ingredients in food products due to different diets, can incur costs for companies.
•
•Cross-cultural differences have time and time again been identified as the most significant
impediment to successful international ventures and projects.

Elements of Global Business Environment
Global demographical environment
•Global demographical environment is a set of demographic factors such as gender or ethnicity.
Demography provides very specific information about different populations in different countries.
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•The future size of world population is projected on the basis of assumed fertility and mortality.
Consumption trends are somewhat more difficult to predict because they depend more heavily than
population projections on global economic conditions, efforts to pursue sustainable development,
and potential feedbacks from the environmental systems upon which the global economy depends for
resources and sinks.

Elements of Global Business Environment
Global natural environment
•Business forms a major part of economic systems that impact on the environment by using up
resources and altering the ecological systems on which the world depends.
•
•Environmental challenges are a global phenomenon. Global warming is not confined within national
borders; it affects the whole world. There is a widespread recognition that economic growth is
harming the environment irrevocably, and that we need to move towards a system that values the
natural environment and protects it for future generations.
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•There are growing pressures on the political authorities to respond to these ecological threats.

Globalization
•Globalization means the huge growth in international trade, international capital flows and the
ability of people to travel, communicate and work across an increasingly interconnected world.
Globalization is creating a more closely interdependent world characterized by growing networks and
has been a major influence in shaping the external business environment.
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•Globalization is a set of interrelated political, economic, and social processes involving
international flows of goods, services, people and capital, which leads to the increasing
interdependence of countries.
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•Globalization is mostly a cumulative process based on changes of the modes of accumulation (how
growth is generated) and their functional relations (how growth is structured).

Globalization
Different views on globalization
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•Economist focus on the growth of international trade and the increase in international capital
flows.
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•Political scientists view globalization as a process that leads to the undermining of the nation
state and the emergence of new forms of governance.
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•Sociologists view globalization in terms of the rise of a global culture and the domination of the
media by global organizations.
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•International relations experts tend to focus on the emergence of global conflicts and global
institutions.

Globalization
Globalization drivers
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•The changing economic paradigm
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•The spread of international governance and regulation
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•Finance and capital spread – liberalization of cross-border movements
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•The diffusion of information and communication technology
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•Social and cultural convergence
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•Cooperation among countries
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•Rising incomes

Globalization
Advantages and challenges of globalization
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•Employment – globalization can increase or disrupt employment. Employment may increase for
companies that otherwise could not sell their full capacity within their domestic markets. Domestic
employment may fluctuate because of volatile foreign economic and politic situations that disrupt
sales.
•Environment – groups over the world are becoming more concerned about devastation of the
environment, but countries have been taking diverse approaches to environmental problems. Much of
the technology that spreads globally are resource-saving technologies, such as more efficient
gasoline engines, recycling processes and stronger alloys that use less metal.

Globalization
Advantages and challenges of globalization
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•Monetary and fiscal conditions – advantages of globalization is that money, if allowed to move
freely, should go where it will be most needed and have the highest productivity. The result has
been growing cooperation among the richer countries, particularly in coordinating their monetary
policies.
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•Sovereignty – globalization may undermine sovereignty in two ways. First, the contact with other
countries creates more cultural borrowings. Languages add words from other languages, people
embrace religions from other countries and consumers buy foreign products rather than traditional
ones. Second, countries are concerned with the fact that important decisions may be made abroad
that will undermine their national well-being.

Globalization
Measurement of globalization
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•Scope – the extent to which international economic integration is truly global rather than
confined to the „triad“ of North America, Europe and Japan.
•Intensity – the depth, embeddedness and extensiveness of the integration that has taken place,
both between countries and within organizations.
•
•Sensitivity – the degree to which events in one part of the global system transmit themselves to
other parts of the system. The more integrated the system, the more rapid and complete will be the
transmission of the effects of economic developments and crises throughout the system.

Globalization
Measurement of globalization
•
•Scope – the extent to which international economic integration is truly global rather than
confined to the „triad“ of North America, Europe and Japan.
•Intensity – the depth, embeddedness and extensiveness of the integration that has taken place,
both between countries and within organizations.
•
•Sensitivity – the degree to which events in one part of the global system transmit themselves to
other parts of the system. The more integrated the system, the more rapid and complete will be the
transmission of the effects of economic developments and crises throughout the system.

Globalization
Index of globalization
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Globalization
Global interactions and global power
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