Introduction to Business (BT1201)
Chapter 1: The Concept of Business in Context
- Business are complex and can’t be understood by reference to their
activities (innovation, operations, marketing, human resource
management, nance etc) alone but they all take place in a set of contexts
Businesses and their Contexts
- Businesses operate in all kinds of areas including manufacturing industry,
retailing, banking, nancial services, transport, media and entertainment
- Businesses also vary considerably in terms of size
- Challenging the view that businesses are exclusively pro t oriented
- Business systems & methods operate in all kinds of organisations
- eg. Universities are complex organisations where all business activities
can be identi ed
- There are few colleges that don’t market their courses, seek to increase their revenues or have to
operate in dynamic and competitive markets at home and overseas
- The distinction between pro t and non-pro t organisations has become blurred
- All universities must rely increasingly on generating their own income owing to changes that take
place in public funding
- A business is the organised effort of individuals to produce and provide goods/services to meet the
needs of society
- Incorporating pro t-making concerns such as manufacturing rms & banks, and non-pro t making
such as schools, hospitals and charities
Business activities (5 groups)
- Innovation, Operations, Marketing, Human resource management, nance and accounting
- These activities interact with one another & they don’t exist in a vacuum but are shaped/shape the
contexts in which they operate
- 3 types of context (within the Business in Context model)
- Strategic level: concerned with those management decisions and the in uences on those
decisions, that determine the direction of business activities
- In uences factors such as the range of products/services, amount spend on advertising, the
number/type of people employed, as well as the shape & nature of the organisation
- Strategies are often a question of reconciling opportunities and constraints which exist within the
organisation and the environment in which it operates in
- Strategic dilemma- org. size means that expanding production capacity is impossible & its credit
standing is that it may be unable to raise suf cient development capacity is impossible and it may
be unable to raise suf cient development capital
- The availability of nance is a function of the economic and political climate
- Strategic issues are inseparable from the organisation and its environment - the structure of a rm
is often a product of its strategy
- Strategy: comprises a set of objectives and methods of achieving those objectives
- Usually formulated by top management and is based on a mixture of careful analysis of the
environment and the organisation, the personal preferences of the managers involved, and a
process of negotiation with various other stakeholders
- Organisational level: concerned with issues grouped within: goals, structure, ownership, size and
organisation/corporate culture (often interrelated)
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, - All rms as they increase in size tend to adopt more formalised structures which can place
limitations on the nature of business activities
- Organisation: the way in which people are grouped & the way they operate to carry out the
activities of the business (key elements are de ned as the goals of the business and how they are
formulated, ownership & control, size, structure & organisational culture
- 5 factors that operate at the environmental level
- The economy, the state, technology, labour, cultural and institutional differences
- The in uence of all these elements and their interaction with individual organisations takes
place within the context of globalisation
- The behaviour of labour markets is a function of the level of economic activity and legal
provisions dealing with issues such as trade union membership & discrimination
- The composition of the labour market re ects changes in technology, economic and social
changes and government policy
- The mobility of labour within and between countries varies with the social and cultural
traditions of those countries and with the immigration laws
- The economic environment shapes businesses & is also a product of business activity
- The technological complexity of the product market in which the rm operates largely
determines the extent of its research & development (R&D) activity and its strategies
- Changes in technology are products of innovation activity at the level of the rm
Interaction-In uence, systems and contingency approaches/models
- Interaction-in uence model
- The various elements of the business in context model interact with one another and in uences go
backwards/forwards across the various levels
- The systems approach
- Assumes that all organisations are made up of interdependent parts which can only be understood
by reference to the whole
- The development of systems thinking starts with the analogy of the rm as a living organism- to be
effective it must adapt to its environment to survive
- The inputs, processes and outputs must be balanced so the rm can obtain equilibrium
- View of business involving 2 related concepts
- Businesses are made up of a series of interactions,
involving business activities, various organisational
aspects and the environment
- Views business as a series of inputs from the
environment, internal processes and outputs
- The contingency approach
- Starts with an analysis of the key environmental variable
which shape the organisation
- Proceeds with the assumption that the successful rms are those that adapt to the key in uences
and achieve some best t with their environment
- The strategist attempts to match the environmental opportunities and threats with the
organisation’s own strengths and weaknesses to develop an optimum strategy
- Focuses on the relationship between the organisation and its environment
- It embraces the notion that business activities and the way they are organised are products of the
environment in which they operate - Thus the most successful businesses are those that are
organised to take advantage of the prevailing environmental in uences
- Both systems: are based on the concept of an organisation interacting with elements in its
environment and adapting to them
- Both have been criticised for focusing on a limited range of environmental variables, for being
deterministic, and for ignoring both the in uence of the organisation on its environment and the
values and behaviour of management and the workforce
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, - Business strategies can and do in uence environmental contingencies and most managers attempt to
control the environment in which they operate
Chapter 5: Globalising Business
Adidas: Sales, suppliers and stakeholders around the world
- The success in China builds on two decades of brand building and major marketing push ahead of the
2008 Olympics
- By focusing on innovation and product quality they sustained their popularity among increasingly
af uent young urban people
- Not only sales but also the value chain of the company has extended across the globe
- Adidas engages in a constructive dialogue to provide solutions to problems that occur and also to
discontinue relationships with suppliers repeatedly found in violation of its standards in the interests of
transparency
EUROPEAN AND GLOBAL BUSINESS
- International business: a rm that engages in informational (cross-border) economic activities and the
action of doing business abroad
- Spend substantial time analysing the international environment of business
- Study the international environment- how and why it is important for business
- Multinational enterprise (MNE): a rm that engages in foreign direct investments and operates in
multiple countries
- Foreign direct investment (FDI): investments in, controlling and managing value-added activities in
other countries
- Within their own region, businesses face different kinds of challenges than when expanding beyond
their home region
- Emerging economies/markets: economies that only recently established institutional frameworks that
facilitate international trade and investment, typically with low- or middle-level income and above
average economic growth
- Gross domestic product (GDP): the sum of value added by resident rms, households and
governments operating in an economy
- Gross national product (GNP): gross domestic product plus income from non-resident sources
abroad
- Gross national income (GNI): GDP plus income from non-resident sources abroad
- Purchasing power parity (PPP): PPP between two countries is the rate at which the currency of one
country needs to be converted into that of a second country to ensure that a given amount of the rst
country currency will purchase the same volume of goods in the second
WHY STUDY INTERNATIONAL BUSINESS?
- For ambitious students who aspire to lead a business unit or an entire rm- international competencies
and knowledge of IB will set you apart as a candidate for fast-track career development
- Top management capabilities, that create connections across the world, are in demand
- Few companies in Europe are able to pursue their business without regular interaction across
international borders
A UNIFIED FRAMEWORK
- What determines the success and failure of rms around the globe (two core perspectives)
- Institution-based view: formal and informal rules of the game
- Resource-based view: rm speci c resources and capabilities
- Firm performance in all their operations around the globe is of concern to managers in internationally
operating rms
- Some rms may be successful domestically, however, when they venture abroad they fail whilst others
successfully translate their strengths from their home market to other countries
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, First core perspective: An institution-based view
- Businesses have to play by certain rules- commonly known as institutions
- These vary considerably across countries and even within countries
- To succeed in IB- you need intimate knowledge about the formal and informal rules of doing business
in each country in which you are operating
- An institution-based view suggests that success and failure of rms are enabled and constrained by
the different rules of the game
- Other rules of the game, which may discriminate against foreign rms, would undermine the chances
for foreign entrants
- Informal rules such as culture, norms and values also play an important part in shaping the success and
failure of rms around the globe
- Institution-based view: suggests that the formal and informal rules of the game, known as institutions,
shed a great deal of light on what is behind rm performance around the globe
Second core perspective: a resource-based view
- Suggests that rms success and failure around the globe are in uenced by their environment
- However, if we push this view to its logical extreme, then rms performance would be entirely
determined by their environments
- Validity is questionable
- Resource-based view focuses on a rms internal resources and capabilities
- Foreign rms have to overcome a liability of outsider-ship to do business globally
- Liability of outsider-ship: the inherent disadvantage that outsiders experience in a new
environment because of their lack of familiarity
- Your ability to operate depends on your regulations, languages, cultures and norms and on your
familiarity with the local context
- The liability of outsider-ship increases the more a rms origins differ from the host environment,
the less the rm has experience in the host country and the further away its nearest prior af liate
UNDERSTANDING GLOBALISATION
-Critics argue that globalisation undermines wages in rich countries, exploits workers in poor countries
and gives MNEs too much power
Views on globalisation
- For young people, globalisation is often rst the internet and the information and communication
opportunities it create
- Digital technologies not only enable instant communication but new types of business models
- Mature businesses have to reassess their manufacturing operations and supply chains in view of
potential disruptions through digital technology
- A second view associated globalisation with the rising power of MNEs and growing inequality
- MNEs have grown big and have attained considerable bargaining power
- Nations appear to have less control over what happens within their borders
- The relative income of the highest skilled people is rising, while the share of income from capital is
rising relative to income from labour
- Increased global trade allows greater specialisation and greater synergies of pooling resources-
increase productivity and create potentially more wealth
- Some interpret globalisation as a force that makes us all more similar and that eliminates the
distinctiveness of our national cultures and identities
- The world is on a path of convergence where consumers become more alike
- Globalisation: a process leading to greater interdependence and mutual awareness among economic,
political and social units in the world and among actors in generally
- Globalisation has created unprecedented contact between cultures but only marginally reduced
clashes between them
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