Systems Approach of International Business

THE SYSTEMS APPROACH

Openness is one of the most important qualities of a managerial philosophy that fosters internationalization of a business's activities. Systems approach provides an analytical framework for viewing an organization as an open, organic system that is in continuous communication with its external environment. It is the exchange of information with the external environment that guarantees the survival and prosperity of the organization.  

As Exhibit 1 illustrates, there are three main inputs to any organization: people, money, and physical resources. These three inputs are processed in accordance with certain economic principles (such as the least-cost combination). The results of this processing are three outputs: products, waste, and pollution. Input, processing, and output are coordinated by management through such functions as goal setting, decision making, and controlling. Management, in carrying out this combination of input, processing, and output functions, receives input from the external environment regarding scientific and technological development, governmental policies, and public attitudes.

In order to survive, the open system depicted in the exhibit must maintain an internal order that is in tune with the order exhibited by the external environment. Not only must the management of the system have a very good knowledge of the internal workings of the organization; more importantly, it must learn as much as possible about the characteristics of the external environment. It thus appears that the ultimate task of management is to secure a harmony between the organizational objectives and the external environment's capacities.

The implications for management of these demands for environmental and internal congruence are twofold. First, since the environment is multifaceted and changes continuously, the firm's management must remain intimately acquainted with it, consider as large a portion of it as possible, and make neither a conceptual nor an operational distinction between the home/ domestic base and the foreign/ international environment. Second, since the parts of the environment will at any given moment be at different levels of economic development, the company's management must always keep all alternative modes of entry alive. A company must be ready to switch, for example, from exports to direct foreign investment if the host country moves up the industrial development process.

The environment represents the totality of factors that affect the firm and are beyond the immediate control of the firm's management. The study of the macro environment places emphasis on the relationship between humans and their natural habitats.(exhibit 2) The natural habitat is the set of interrelated and interdependent life support systems that provide the means of human survival.  This information becomes input in the organizational decision-making process as the set of uncontrollable variables in the strategic management.

Understanding the macro environment of a country or the world requires understanding the relationship between humans and their natural habitat(exhibit 3). The resources and the carrying capacities of the natural habitat affect both the quantitative aspects   and the cultural aspects (such as social, political, and economic behaviors) of human life.

Overview

Significance

Physical Environment

1. Minerals

Controversy about the adequacy of the existing supply of minerals to meet world demand is heated debate. On one hand, some argue that the world's supplies of minerals cannot be indefinitely maintained. Thus, they recommend strict conservation of mineral resources. On the other hand, claims that minerals remain in the crust of the earth for future generations.

What the international manager must realize is the utilization of the country's supply of natural resources to a large extent with economic and political stability.

1. ECOLOGY

There is disagreement as to whether the earth's "reservoir", minerals, and energy is at a safe level. The earth's capacity to absorb human and industrial waste-its carrying capacity-has reached critical limits in many parts of the world. This is especially true for the industrialized countries of Western Europe, Japan, and the United States.

1. Managers must resist the temptation to forgo expenditures for pollution controls designed to ensure the safety of the people who work and live in close proximity to a factory.    

THE HUMAN ENVIRONMENT

1. POPULATION

The twentieth century saw a truly remarkable rate of population growth. During the first half of the century, the world's population, growing at 1 % per

year, reached the 2.5 billion level.

The major importance for international business managers is to consider the contrast between the growth rate in developed and the developing countries is evident.

1. RELIGION

Religion is a socially shared set of beliefs, ideas, and actions that focus on

a reality that cannot be verified empirically, yet is believed ,to affect the course

of natural and human events.

The businesspeople who are briefed for a business trip abroad are advised about the eating arid drinking habits of the people they plan to visit, few receive an organized introduction to the country's religions.