Executive Summary
In the current global business environment, there is no single economy that does not engage in international trade. Economies of most developing countries are very much dependent on international trade. Generally, the study aims at providing a broad understanding of some of the critical issues in the global business environment. In so doing it gives the context for doing business internationally.
Businesses interact with nations and influence legislation, regulations and particularly the rules governing international trade. This, in turn, impacts upon different countries in different ways. Therefore, the ultimate aim of the study is to give a clear understanding of the international business environment in the context of the process of globalization and to examine how the various ‘actors’ try to influence that environment. Lastly, since the international business environment and globalization is not complete without examining prospects and critical factors underlying those prospects, the study uses scenario planning to achieve this objective.
Introduction
Overview
International business involves the movement of goods and services across the borders. International trade is subject to international or bilateral regulations and tariffs (Husted & Melvin, 1993, p. 2). Nowadays, trade barriers are becoming common phenomena in the global business environment, and they comprise mainly of legal obstacles and foreign interruptions. The number of nations taking part in international trade has more than tripled in the last century. Businesses nowadays stumble on more individual countries, each with different business regulations and legal systems. In the previous fifteen years, global exports have risen to over 6% per annum (Smale & Tiina, 2006, P. 3; Morrison, 2002, P. 4).
Global business enterprises are familiar with the dynamic environment of the legal systems, which is becoming more stringent and stricter than ever. The current scenarios confirm that more deals mean more cases in the court. Nations that have not invested in alternative methods of business arbitration are facing backlogs of cases in the courts, with associated increased costs and missing business opportunities. The diverse business and legal cultures and practices in the global business environment mean that local firms wishing to export their goods and services must do so in terms they and their foreign partners understand best (Bartels et al., 1998, P. 5).
The international business environment is experiencing numerous challenges ranging from unfair terms of trade to unhealthy competition, and fluctuation in foreign exchange, among others. The most recent problem that hit many economies in the world is the global recession. The global crisis had a significant impact on many economies world wide. The hard-hit economies were less developed and developing countries.
The crisis led to less money supply in these economies and reduced government spending. This, in turn, resulted in high unemployment rates and increased poverty level. The worst affected countries attracted less foreign investment and had a considerable amount of debts to pay after borrowing fund to revert the crisis (Mahdavi, 2006, P. 5; Gerald, Edwin & Jasper, 2005, p. 15; Giddens, 2002, p.12).
Purpose of the Report
This report aims at exploring important issues related to the international business environment. These include the legal aspects of the international business environment, globalization and its effect, international business ethics, among others. However, the study will narrow in on Greece’s business environment and how it is helping the country to rip the benefits of globalization. The study will also explore scenarios for the future development of Greece.
International business and globalization
The perception about globalization and its results differ and have gone through a series of the distinct cycle over the two decades. The upward trend of the cycle took place from 1990 to mid-90s, an era that was characterized by an extremely negative mood in the industrialized economies. Politically speaking, the fall of communist states in Eastern Europe in the late 80s and the collapse of the Soviet Union in the early 90s, and the ardent adoption of the democratic system of governance and policies dictated by market forces by these nations, added to an atmosphere of victory in the West (Ohmae, 1995, P. 7; Van Creveld, 1991, P. 2).
The transformation was viewed as history-making, heralding what some experts call the “end of an era.” These incidents corresponded with the beginning of the prolonged boom in the United States, which was facilitated by the increased productivity resulting from the adoption of new technology, particularly the application of information technology. The benefits of globalization were supposed to stream to the developing economies and integrate into the world supply chain, at the same time also promising unlimited supply of capital to well-organized economies (Soros, 1998, P. 13; Huntington,1991, p.9).
The atmosphere of hopefulness did not last very long. The first shock was the crisis in Eastern Asia in 1997, and this was followed by currency collapse in Russia, Brazil, Turkey and Argentina in the subsequent years. These crises, and the harsh economic recessions they resulted in, emphasized attention on the susceptibility of the upcoming economies, and the risks caused by globalization, particularly in the financial sector. The failure of the global financial institutions to warn the world on the adverse effects of the global crisis and the following failure to reinstate stability swiftly wore down the confidence in the quality of the institutional support, the foundation of economic integration (Van Creveld, 1991, P. 3-4).
The economic disposition in the developed economies also changed contributing to the erosion of the earlier optimism. The protracted boom in the United States only lasted until 2001 when the technology stocks collapsed, and the country started experiencing a downturn in economic activities. As unemployment started to rise in the developed nations, there was a hostile response against globalization in the industrialized economies, and world leaders started calling for fair trade.
The political disposition also changed as the success associated with the “end of an era” also subsided. At the beginning of the 21st century, new threats to economic integration started to take shape. The threats included terrorism, indistinct threats to democratic and open societies. These concerns were, to a great extent, overblown by the September 11 attack in the United States (Charles, 2007, P. 45).
Given the above changes in the global perception, it is no doubt people are becoming so plagued with doubts regarding the nature of globalization and its impact on the economies. Nonetheless, globalization is not a definite or specific policy that should be supported or opposed. Instead, globalization is a process having an effect in the world around us, facilitated by international developments which are greatly beyond the control of many countries.
Globalization creates a completely different peripheral environment. Therefore, governments must carefully choose policies that would enable them to draw optimal benefits. This does not imply that all emphasis on development policies should be on the global environment only. Countries can only cope with the effects of globalization if they have strong economies (Terpstra & Sarathy, 2000, P. 6; Morrison, 2002, P. 4).
Legal Aspect of the International Business Environment
In a general perspective, a country’s legal system offers the context, the means, and the systems through which it regulates commercial practices, defines the constraints within which businesses and persons conduct their transactions, denote the rights and responsibilities of parties taking part in the transaction, and highlight the processes of legal redress to those seeking recourse in the legal system. There are strategic areas of legal concerns in the international business environment. The first one is product safety and liability. Multinational/ foreign companies are required to tailor their products to meet local conditions and standards.
The product liability laws are well defined in the majority of the industrialized nations. On the contrary, most developing/ less developed nations have nominal product liability laws, while in some cases does not exist at all. Even though the product liability laws offer redress in case of damages in product deficiency cases, it is less common in most countries globally (Hunter, Shapiro & Ryan, 2004, P. 851-852).
Another legal concern is the behaviour in the marketplace. Legal systems in many jurisdictions determine the legitimacy of practices such as pricing, supplying and advertising of products and services. Antitrust laws are significant components of business law. Product origin is also a concern. Laws within the national borders normally determine the flow of goods and services within and without to evaluate changes that may be due as a result of bringing the product into the local market. Policies in most countries are always concerned with local products versus foreign products (Hunter, 2006, P. 37).
Legal jurisdiction is also a significant concern. Every country has different laws that apply to any given situation and the venue in which the litigation should take place. Multinational companies must be cautious when including a choice of law clause and choice of debate clause that denotes particular laws that govern the dispute. Globally, many countries subscribe to the UN Convention on Contracts for International Transactions in addressing disputes arising from international contracts (Jones, 2005, p.40).
Arbitration has turned out to be one of the most preferred mechanisms of resolving disputes. Normally, arbitrations are controlled by the New York Convention adopted in the late 50s. This protocol permits parties to choose their own mediators and resolve disputes on an impartial ground.
Another legal concern is the protection of intellectual property rights. Many studies on the level of protection of international intellectual property rights have established that developed countries provide stronger legal protection than developing countries. Similarly, cultural attitudes may also explain the disparity among nations in the protection and violation of the intellectual property rights and the ability of a country to significantly attract a high amount of foreign direct investment (Hunter, Shapiro & Ryan, 2004, P. 853).
International Business Ethics
In these days and age, there is a need for appropriate ethical conduct within the business fraternity to avert possible lawsuits. The public scandals of business misconducts and deceptive practices have affected the public perceptions of many companies. The expansion of international businesses and a decline in trade barriers has additionally underlined the interest in the subject of ethical conduct and social responsibility. As multinational companies spread out globally and gain access in the foreign markets, ethical conduct of their staff is very significant given the fact that cultural diversity linked to such expansion may destroy the greatly shared cultural and ethical values common in harmonized businesses (Bartels et al., 1998, P. 800).
Even though understanding other cultures and appreciation of diversity improves communication across different cultures, it may not be adequate to offer viable principles of suitable ethical behaviours in corporate companies. Therefore, concerns of unethical behaviours of companies in the foreign countries are evident in collective laws such as The International Corrupt Practices Act of 1978 and Sarbanes Oxley Act of 2002. The main challenge that most organizations face in the world today is how ethical values are effectively communicated to the employees and the suitable channel of communication to use (Charles, 2007, P. 22)
Case Study: Analysis of Greece’s Economy
Greece is situated in the south-eastern part of Europe and is dominated by one ethnic group-Greek. The country achieved its independence in 1829 from Ottoman rule and slowly annexed the neighbouring islands whose population were also Greek speakers. In the early 80s, Greece became a member of the European Union and was the twelfth member of the European Economic and Monetary Union. Greece’s economy is under the capitalist system, and its public and tourism sector accounts for over half of the country’s GDP. Greece also has immigrants who constitute 20% of the workforce, mainly in the Agricultural sector (Eichengreen, 2010, p. 5; CIA, 2010, P.3).
Since 2003 up to 2007 Greece economy was growing at the rate of 4% per annum. This was partially attributed to massive infrastructural spending linked to the Athens Olympic games in 2004. The massive spending increased money supply in the economy and enhanced the level of consumer spending. However, the economy was hardly hit by the global economic crisis in 2008, which saw a dip in the country’s GDP.
Appendix 1 illustrates the effect of the crisis on the country’s economic growth. This means that there was less money in circulation since the crisis had slumped the economy’s productive capacity. The global economic crisis increased public debt, inflation and job loss which also resulted in the domestic financial crisis (Eichengreen, 2010, p. 6; Euromonitor International, 2010, p. 12).
The country faced a lot of pressure from the European Union and the general participants in the global market. This forced the government to resort to measures such as reducing government expenditure, privatization and health sector reforms. The main objective of these measures was to increase the country’s competitiveness through reforms in the labour and product markets. Nonetheless, Greece faced challenges in the long run in its pursuit to push through with these reforms, and this was particularly from the powerful labour organizations and also the general public. This has had a massive impact on the government’s ability to implement reforms to meet the targets (Hooper, 2010, p. 4).
In the mid-2010, IMF and the EU governments lent Greece an emergency loan worth approximately 150 billion dollars to help in repaying the debts. Despite the bailout loan, the government proceeded with the spending cuts and increased taxes. In 2008, the country’s economy was doing well until the effects of the global financial crisis started to be felt. Since then, the country’s GDP growth and consumer expenditure have continued to deepen up to now (CIA, 2010, p. 8).
A general look at the role of the Greeks in the society and business environment confirms that they are people who are very proud of their cultural heritage. A recent study conducted in Greece established that the Greek’s pride exceeds the ethnic satisfaction of all the tribes within the EU block. Majority of the Greeks are Christians, particularly Greek Orthodox. Greek Orthodox is regarded as a national religion and thus is a very significant part of life in this country.
Therefore, the church has a massive influence on society and plays a dominant role in the country’s politics and governance. The values and beliefs of the Greeks are very powerful since the family acts as the foundation of social structure. Extended families are expected to help one another at all time, and this relationship is carried over in the business arena (Kwintessential, 2010, p.13-14).
According to the Greek tradition, the role of a woman is to take care of the family and to remain loyal to her husband, who is the provider. However, this has changed considerably due to western influence and can be noticed in the lifestyle of the contemporary Greek woman. Nonetheless, the Greek society is still dominated by men and women are still viewed as inferior to men. Most women are working in less lucrative jobs as compared to men. This demonstrates that up to now, the level of gender equality in Greece still wants (Graham, 2010, p. 15).
The scenario for future development
To develop the scenarios, the major factors that can impact on the future of Greece have to be established. The main driving forces that are going to be examined are the level of economic recovery and the country’s level of environmental development. The interaction of the above two factors will result in four different scenarios in Greece and will artistically show how things may develop in the future.
Owing to the global economic crisis, Greece economy has massively been affected, and the country is still struggling from debt crisis which is likely to affect other EU members. In the mid-2010, the financial crisis in the country had deepened more than it was anticipated. The crisis forced the government to take unpopular measures to revert the crisis. The debt crisis is the main subject in present Greece, and the government is doing everything possible to tackle the problem (Burke, 2010, p. 10).
Environmental matters have also become a major global concern, and many countries, including Greece, are working together to come up with policies that can regulate human activities to ensure environmental sustainability. One of such policies includes the Kyoto Protocol, which targets the reduction of greenhouse gas emission by 8% by the year 2012. Most of the European nations and other advanced economies are on track to meet this objective (Burke, 2010, p. 11).
The Greek government has also taken sustainable development practices very seriously and has come up with strategies to meet this objective shortly. For many years Greece has steadily moved towards sustainable development by enacting laws that have ensured appropriate management of wastes. These legislations focus on prevention of wastes, recycling and reuse, and enhancing waste disposal and monitoring (Hooper, 2010, p. 4).
Scenario development
The interaction of the two driving forces of the Greece economy may result in four different scenarios, as illustrated in appendix 2.
First Scenario: Rigorous Upsurge
Greece will focus on intensifying its industrial growth, enhance employment security and increase emphasis on skilled workers. People from different societies and diverse cultures are increasingly coming together to improve the international network of communication as the effect of globalization has increased. Liberalization of trade between countries has enhanced free movement of products, money and information across the borders. The enhancement of international collaborations has resulted in changes in people’s lifestyles and work. These collaborations open up new opportunities, but can also create risks and uncertainty, especially for those who are not willing to embrace the change.
However, the economic recovery from the financial crisis and steady growth will result in increased domestic production. This will result in higher demand for goods and services, which in turn will raise the consumption level. The rise in consumption level can be attributed to the extraction of natural resources which are converted into finished products and ultimately returned as waste. This trend will continue as demand rises, and the economy grows. Nevertheless, the country will not be focusing on sustainable development as businesses will be focusing on economic growth.
As the economy improves, there will be more money flow in Greece, which will attract multinational companies into the country. The presence of multinational corporations in the county will enhance globalization and more foreign direct investment. This will popularize international trade and minimize trade barriers. The government and the private sector will invest more on education since these corporations will demand more professionals and skilled workers. Greece will develop its workforce, and this means that the country will have many skilled workers of its own. This, in turn, will generate more professionals and skilled workers in Greece since they are educated within the country; a few people will be sent to other countries to study.
The increase in the number of professionals and skilled human capital will promote innovation and productivity in the industries. This will also enhance foreign direct investment due to the increased productivity of the companies operating in Greece, and more focus will be put on individualism. Emphasis on skilled workers and profitability will be the main goal. This will change the public lifestyle and encourage the consumption of luxury goods. Such developments will improve the country’s domestic and global competitiveness. The role of the private sector in the country will increase as the governments’ powers are reduced. The main goal here is to improve the economy, and environmental issues are given less focus. Therefore, the country will fall behind in meeting the global environmental protocols.
The increase in international trade will focus on buying, selling, manufacturing and marketing of goods and services. Economic recovery will boost public confidence. The government will be able to repay all the debts borrowed during the crisis. This will also see an increase in consumer spending and a reduction in unemployment level. The country will be able to adopt new technologies, particularly in the telecommunication industry, which is very important in coping up with current challenges and market patterns.
There will be an increasing need for flexibility and swift response to consumer demands. Innovation will be the key to meeting consumer demands, and the country will be in a financially secure position to invest in research and development and new technologies to achieve a competitive advantage in the global market.
In this scenario, Greece will benefit from economic growth but will not meet the environmental targets, which will have a major impact on society as a whole. The country will be seen as one with no moral stance and does not care about the significance of the environment. The effect of global environmental problems will mainly be felt in the less developed nations which will be blamed on countries like Greece which have not complied with environmental protocols. In other words, Greece will become a country that is only concerned with the state of the economy and neglects environmental issues that affect the world.
Second Scenario: Positive momentum
As the country recovers economically, there will be a need to become more competitive in the global arena. However, the European Commission will become more influential in its role in regulating rivalry and unhealthy mergers. Therefore, there will still be pressure from the EU and its member countries on Greece to abide by the set regulations. Nonetheless, the European Union as a whole will become more powerful, and Greece will be considered as one of the financially stronger member states.
The strong economy will encourage the Greek government to spend on environmentally sustainable projects. As more focus is put on the significance of the deteriorating environment, Greece and other strong economies will take the initiative to avert this problem. They will emphasize on becoming an environmentally friendly nation.
Increased economic growth will lead to more job opportunities and security. Environmental activists will pay a lot of attention on subjects of climate change and will take a moral and ethical stance on meeting the international protocols. A lot of focus will be put on green issues, and this will have a huge impact on business operations. The government will enact more laws and strict regulations to promote a green environment. Companies which do not meet these targets will be penalized, and environmental matters will become a societal obligation. This will encourage more collaboration between businesses and the general public in environmental matters.
Companies will begin to invest in research and development for a greener environment, and the incentive to change onto low carbon emission will be viewed as a long-term venture. Eventually, Greece will become a more powerful nation, and investment in greener/ low carbon technologies will be used as income-generating opportunities. Greece will head other strong economies and will be at the centre stage in helping other nations suffering from the impact of global climate change.
There will be an increased significance of Environmental Non-Governmental Organizations (ENGO’s) in Greece, and these organizations will play a huge part in society. ENGO’s will play a significant role in securing international environmental protocols and thus will have a massive impact on decision making in the country. In other words, they will have a say on government decisions and policies regarding the environment.
Transnational corporations and small and medium companies will gain a competitive advantage through strategic management of environmental problems. ENGO’s will work for hand in hand with the business community in tackling environmental challenges and managing natural resources. Finally, environmental issues will be approached by the government as a critical element of business strategy and would deal with them as an obligation of society.
Third Scenario: Total Failure
The financial crisis deepens in the country, and lack of stability in the economy results in an increased rate of unemployment and further weakening of consumer spending. As the financial crisis gets worse, the government is forced to take drastic action to avert the crisis. The action must include raising more funds to cater for public expenditure. If Greece decides to reducing taxes or increasing public expenditure, this will enhance demand for goods and services in the economy. On the other hand, if the government raise taxes or minimize public expenditure, this will have adverse effects on the business environment and probably lead to an increase in the level of unemployment.
The worsening state of the economy will lead to expulsion from the EU membership. This is because the crisis in Greece could have a huge impact on other member states and could bring them down as well. This will cause more problems for the country since the financial support from the EU will be no longer there. Lack of EU membership will also mean increased trade barrier, which will further worsen the situation for the country trying to pick up from the crisis. This will force the private sector businesses, including the multinational companies, to move out of the country in search of better opportunities and to improve their businesses.
Deepening of the economy will force the government to cut down public expenditure. Reduced expenditure in the public sector means loss of jobs reduced working hours and low pay. Pension schemes will be adversely affected, consumer income will reduce, and consumer spending will considerably decrease. This will cause public despair and loss of confidence in the economy. The lifestyle of the Greeks will drastically change since people will be focusing on making a living instead of enjoying a luxury life.
People’s focus will be making money, and the government will focus on increasing the credit flow, and therefore the environmental issue will be forgotten. The double-dip recession and lack of environmental focus will lead to loss of international confidence in the country. No foreign investor will want to invest in Greece, and the country will no longer be a dominant force in the global economy. The country will become less competitive in the international arena, and the emerging economies, especially those from Asia, will outshine Greece.
Fourth Scenario: Optimistic Future
Regardless of the double-dip recession, causing despair in Greek society, the government and the central bank will be doing everything possible to reverse the situation. The government cuts interest rates, and because of the deficit, it further reduces public expenditure. However, the emerging markets will attract more growth than developed markets and thus will capture long-term investors. Greece will still be a member of the EU, and with a common currency and monetary policy, this will cause problems for several member states.
EU members such as France and Greece have different economies, and therefore the crisis will create a discrepancy in the system. France being financially secure, will take universal environmental matters seriously. On the other hand, Greece, which is experiencing a double-dip recession, will also want to focus on the global environmental issues which will prove very challenging. Public awareness of the environmental challenges within the country will motivate people to take part in environmental development projects. The government will also emphasize on sustainability policies and minimize carbon emission in the country.
Although the country will still be facing economic challenges, EU support and global environmental protocols will motivate the country to meet the target. To improve its global competitiveness, the Greek government will establish stringent rules and regulations for businesses operating within the country and encourage productive use of resources. There will be new strategies in dealing with the effects of climate change from the societal and government point of view. A different set of rules will be placed to encourage international cooperation to enhance energy efficiency and to promote the use of environmentally friendly technologies.
European Commission will turn out to be more prominent in its role in regulating the environmental matters and will take stern actions in dealing with such matters. This will also have a huge impact on businesses operating within the EU block; managers of these companies will become more conscious with the interrelationships between local and international environment on their companies. Even though most businesses will put a lot of emphasis on growth and profitability, environmental matters will also take centre stage among the business fraternity.
Conclusion
From the analysis, the four scenarios are different in nature, even though some elements are common. The first scenario put economic recovery as the main agenda of the country, while environmental issues are neglected. However, this is not realistic since environmental matters are very important in society, and no country can achieve a competitive advantage without meeting its global targets. In the future environmental matters will become very important as the effect of climatic change becomes apparent. Therefore, for the country to improve its competitive advantage, environmental matters must be taken seriously, particularly when they are in a better financial position and face external pressure from the European Commission.
According to Scenario three, the double-dip crisis will result in the neglect of environmental protocols. This is because the government will give more emphasis to economic recovery and less focus on environmental matters. Severe financial crises, coupled with neglect of environmental responsibilities, will result in expulsion from the European Union. This situation is avoidable, and the Greek government will do everything to avoid this situation.
The fourth scenario is where, despite the double-dip recession, the government still pays attention to environmental matters. However, taking into consideration all the aspects, the second scenario is the most probable.
This is where the country will focus on environmental matters after recovery from the recession. The country will recover from the current financial crisis, become more competitive in the international arena and emphasize on enhancing the quality of life. Environmental matters will have a massive significance in society as a whole. Therefore, in future Greece will improve its economy and be in a position to spend and apply climatic friendly technologies. Society will pay more attention to the ethical and moral stance to take care of the climatic change and promote a green environment.
References
Bartels L.K. et al. (1998). The Relationship between Ethical Climate and Ethical Problems within Human Resource Management. Journal of Business Ethics, 17, pp.799-804.
Burke, M. (2010). Slash and burn means crash and depression: Tribune Magazine, p.10-11.
Charles, S. (2007). International Trade and Globalization. Stocksfield: Anforme Inc.
CIA, (2010). The World Fact book: Greece. Web.
Eichengreen, B. (2010). The Greek crisis: It is not too late for Europe. Web.
Euromonitor International. (2010). Country Factfile. Web.
Gerald, A., Edwin D., & Jasper, S. (2005). International Marketing and Export Management. Harlow: Pearson Education Ltd.
Giddens, A. (2002). Runaway World. London: Profile Books.
Graham, C. (2010) What was the role of women in Athens?. Web.
Hooper, J. (2010) Europe’s heritage at risk from economic crisis: Guardian, p. 4.
Hunter, R.J. (2006) Parallels and Lessons of Kelo: Property Risks in International Business. Business Law Review, 39, pp. 35-55.
Hunter, R. J., Shapiro, R.E., & Ryan, L.V. (2004) Legal Considerations in Foreign Direct Investment. Oklahoma City University Law Review, 28 (2 & 3), pp. 851-872.
Huntington, S. (1991) The Third Wave: Democratization in the Late Twentieth Century. Oklahoma: Oklahoma University Press.
Husted, S., & Melvin, M. (1993) International Economics. New York: HarperCollins College Publishers.
Jones, G. (2005) Managing Governments: Unilever in India and Turkey. London: Harvard Business Press.
Kwintessential, (2010) Greece – Language, Culture and Doing Business Etiquette. Web.
Mahdavi, I. (2006) International Business Ethics: Strategies and Responsibilities. Journal of Academic and Business Ethics, 1, pp. 1-6.
Morrison, J. (2002) The International Business Environment. New York: Palgrave McMillan.
Ohmae, K. (1995) The End of the Nation State: The Rise of Regional Economies. London: Harper Collins.
Smale, A., & Tiina, J. (2006) International Management lecture Hand-out. Vaasa: University of Vaasa.
Soros, G. (1998) The Crisis of Global Capitalism: Open Society Endangered. New York: BBS/Public affairs.
Terpstra, V., & Sarathy, R. (2000) International Marketing. Sydney: The Dryden Press.
Van Creveld, M. (1991) The Transformation of War. New York & London: The Free Press.
Appendices
Appendix 1: GDP Growth from 2006 to 2010
Appendix 2: Scenario development matrix for Greece
