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Business Theory

In: Business and Management

Submitted By achambers2012
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Business Theory The foundation of business theory has been, and always will be, a consistently evolving process for as long as the exchange process is around. Since the early stages of mercantilism, in the seventeenth century, business theories began to shape the daily operations of ventures. However, it should be clearly understood that a theory does not provide a definite solution to success. Instead, theories are merely “a set of assumptions, propositions, or accepted facts that attempts to provide a plausible or rational explanation of cause-and-effect relationship among a group of observed phenomenon.” These ‘acceptable facts’ will in turn shape a business’s goals to obtain success within their respective industry. Writer, and business theorist himself, Riad Ajami explains, “Theories of trade have evolved over time, beginning with the emergence of strong nation-states and the organization for systematic exchanges of goods among these nations”. (Ajami, 48) Throughout this document, six business environments (domestic, global, technological, political-legal, sociocultural, and economic) will be explored, in regards to how these environments affect the ongoing evolution of future business theories. Business theorists have changed the way people do business, not only from a domestic standpoint, but on a global level as well. The domestic and global environments are primarily based on demand conditions. ‘Conditions’ of a business theory can in turn be used in a business’s growth strategy, known as product-customer expansion. “Under this approach, the venture attempts to expand both into new products and new customers…If you want to increase sales revenues, you must develop new products, pursue new customers, or both.” (Coulter, 329) However, business leaders must have a firm understanding of all of their business’s environments to make a sound decision on where to expand. For example, in the international product life cycle theory, it’s understood that “multinational firms no longer necessarily [have to] introduce a product at home. Instead, they might launch an innovation from a foreign source in the domestic markets to test production methods and the market itself, without incurring the high initial production costs of the domestic environment.” (Ajami, 53) With this in mind, leaders must explore each business environment in order to begin their ventures expansion. The sociocultural environment could be one of the first places a business leader would explore the idea of expansion. “Although society and culture do not appear to be a part of business situations, they are actually key elements in shaping how business is conducted…and the determination of the success or failure of a local subsidiary or affiliate.” (Ajami, 202) As mentioned, theory involves assumptions, propositions, and acceptable facts. In regards to the sociocultural environment, this means how the people of any given society are viewed from an outsider’s perspective; an idea susceptible to offense, if business leaders show no interest in accepting another nation’s values. Therefore, it’s clear that successful venture expansion, whether in terms of innovation, or customer base, is dependent on the sociocultural environment. Furthermore, it could be said that the sociocultural environment, and how it is viewed from a business theory perspective, is one of the previously mentioned ‘conditions for successes’ within the domestic or global environments. While a nation’s sociocultural environment is of high importance in understanding the demands of consumers, the political-legal environment holds equal meaning. Before business leaders can determine whether the people of a nation will accept the product or service of the company, there must be a clear understanding of the legal environment for which they plan to embark on. The political-legal environment refers to the laws that govern the activity of a venture. Furthermore, this environment’s foundation is based upon the host nation’s legal system. “The legal systems of different countries are based in one of four legal traditions or foundations: civil, common, bureaucratic, and religious law”. (Ajami 182) With this in mind, it’s easy to understand how the sociocultural and private-legal environments interact with one another. For example, in a society such as Saudi Arabia, where a religious law system is clearly present, many industries are unwelcomed. In recent weeks, the country banned “the uses of the English language to answer calls or communicate…All ministries and agencies have to use the...Arabic language, the interior ministry said.” (Dilemma X, 2012) It’s clearly understood that in this society, western innovation is typically unwelcomed, making investments there an unlikely move. The exploration of a nation’s economic environment is one of the most important factors of business theory, in addition to social and political interaction. However, it’s much more complex than simply choosing the wealthiest nations to market to. Again, Saudi Arabia for example, is an extremely wealthy nation, with its abundance of oil resources. However, the importance of the nation’s sociocultural and political-legal environments made it clear that successful western investment, or any English-speaking nation for that matter, is unlikely. Business theorist classify market potential into five categories: preindustrial, less developed, developing, industrialized, and advanced. In each category, a nation’s economic wealth is classified in regards to the presence of several factors. Availability of natural resources, transportation systems, industrialization, and trade involvement are just a few factors when determining the wealth of these markets. Furthermore, business leaders must take this into consideration, because it is a solid factor in determining the current status, and potential of a nation’s economic environment. In advanced nations, market values are the highest; meaning their sociocultural factors will most likely resemble that of other advanced nations, making a business’s involvement their much more sustainable.
“Global competition drives organizations to reduce their capital employed and cut costs through lean manufacturing, outsourcing and extended supply or to grow by entering new markets, introducing new technologies and building unique alliances.” The final business environment deals with a nation’s technology and is directly correlated with the economic environment. Although it plays right in with the other environments, the technological environment is the result of the economic environment. After all, the presence of modern innovations cannot be present unless there is a source of economic wealth. While investment in less developed countries are a common occurrence, it is highly dependent on the type of industry the business is in. For example, a company may remain within its advanced, domestic environment, while producing goods offered to less developed nations. The automobile would be one of many examples of this instance. In many countries, high-tech industries required to manufacture automobiles is seen as a long stretch. However, after entering the twenty-first century, automobiles of all size and costs, are more likely to be seen in a nation, than not. Business leaders commonly invest in the reverse manner as well; goods are produced in less developed countries, and offered to more technologically advanced nations. This idea, commonly known to American’s as ‘outsourcing’, can have a dramatic impact on the success of companies. For example, the video game industry has an ever rising presence in ‘westernized nations’, all around the world. However, the physical process of manufacturing is typically seen in less developed nations, where the technology is introduced at relatively low costs. In turn, companies within the industry are able to sustain high profits through cheap production costs.
In conclusion, it’s clear, more now than ever, that the foundation of business theories will always be an evolving process. As nation’s rise and fall, now and in the future, each business environment will be impacted as a result. Each environment will continue to change the other environments, both directly and indirectly. With it, business theorists will continue to change the way business investing and operations are looked upon.

References
Ajami, R. (2006). The Nature of International Business. In International Business: Theories and
Practice. (pp. 22-43). Armonk, NY: M.E. Sharpe, Inc.
Theory. (n.d.). Business Dictionary. Retrieved May 27, 2012, from http://www.businessdictionary.com/definition/theory.html Coulter, M. (2010). Managing Growth and Other Entrepreneurial Challenges. In
Entrepreneurship In Action. (2nd ed.). (pp. 326-361). Upper Saddle River, NJ: Pearson Education Inc..
Saudi Arabia bans using Gregorian dates. (2012, May 19). Dilemma X. Retrieved May 27, 2012, from http://dilemma-x.net/2012/05/19/saudi-arabia-bans-using-gregorian-calendar-in-official-dealings-and-english-language/
Marketing and Agribusiness Texts. (1997). Global Agricultural Marketing Management.
Retrieved May 27, 2012, from http://www.fao.org/docrep/W5973E/w5973e03.htm#chapter 2: the economic environment
Van der Wiele, T., van Iwaarden, J., Williams, R., & Eldridge, S. (2011). A new foundation for quality management in the business environment of the twenty-first century. Total
Quality Management & Business Excellence, 22(5), 587-598. doi:10.1080/14783363.2011.568264

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