The the Eastern bloc’s political future arose,

The global business
environment is ever changing, and considerable changes could be observed in the
period of time between the early 1990s and the early 2010s. With the example of
German car manufacturer Mercedes Benz, this work will describe the two
environments surrounding two specific events in the corporation’s history. The announcement
for the construction of a plant in the Southern US in 1993 will serve as the
first, while the opening of an R centre in Beijing in 2014
will be the second event. The analyses will be conducted through the PEST
strategy, describing the environment of the time, conveying an understanding of
the respective business moves that were made without further detail about the
moves themselves or the corporation.

 

 

 

 

 

 

2.      Mercedes
Benz announces its first US car manufacturing plant to be built in Alabama (1993)

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2.1.           
Political Factors

 

The early 1990s in Europe
were shaped by the fall of the iron curtain as the symbol of two fundamentally
different systems of ruling states (Halligan, 2014). With a new Europe
underway, questions about the Eastern bloc’s political future arose, implying
changing markets and the restructuring of politics. The resulting German (re-)unification
had several implications related to the GDR’s2 collapse and its integration
into the country’s western part demanding a vast amount of cost the Germans were
facing (Parkes, 1993). Internationally, trust in the German state and its
industry was scarce with regard to its stability and its role, yet its
integration into Europe was highly desired (Sinn, 1996). In 1993, the signing of
the Maastricht Treaty and the completion of the single market agreement, which
included the free movement of goods, services, people and money (European
Union, 2017), paved the way for a future that in spite of the EU’s promising
efforts was uncertain. This uncertainty was illustrated by analyses that
condemned European policies of categorizing products in its single market,
deeming those originating from the Eastern bloc “sensitive” with unfavourable
effects on the respective import policies regarding among others steel and
chemicals, which for the industry could have been promising but were now
subject to “tariff quotas, import ceilings, “voluntary” restraints and
anti-dumping procedures” (Brittan, 1993, p. 25).

The new US president
George H. W. Bush addressed these indicators of protectionism with regard to
the farming sector, the negotiations on the GATT and the World Trade
Organization (Williams & Barber, 1992). The ongoing discrepancies between
the EC3 and the US were a danger
that in the eyes of many could lead to another rise of protectionism which
would put recent years’ accomplishments in Eastern Europe into jeopardy,
implying not only the resurrection of political tensions but also mass
migration from Eastern to Western Europe (Parkes, 1992). Thus, the general
political climate on both sides of the world was tense and characterized by a threat
of protectionism (ibid) among the most powerful actors. Scepticism was mainly
rooted in the development of the newly acquired EC members, which put
especially Germany into a complicated position.

 

2.2.           
Economic Factors

 

Adding to the
complications of a newly shaped Europe and the threat of protectionism came the
early 1990s recession with its main causes lying in lost consumer confidence
following the gulf crisis, a generally slow growth due to restrictive FED
policies and investment related factors that caused a downturn in GDP development
(Walsh, 1993). The USA recovered faster than expected, increasing by 2,7% in
output per hour in 1992 and thus gains in corporate profits (Prowse, 1993).
Real GDP rose by 3,8%, and investments were pushed due to low interest rates
(ibid). In contrast to that, Europe still struggled with low consumer
confidence and concerns regarding investments in especially Germany (Waller,
1993) which was still battling the ramifications of its reunification (Prowse,
1993). In Asia, Japan was battling a financial crisis (ibid) which had resulted
from the excessive spending on goods of earlier years coming to an end, also affecting
European corporations the boom’s beneficiaries (Burton, 1992). The recession
was felt in all industries, and the European car industry was no exception: sales
dropped sharply (FT, 1993) while production costs kept ascending and Japanese
competition was on its way to the continent (Done, 1993). Especially in
Germany, production cost and corporation tax were high, yet working hours were
shorter compared to other economies (ibid). The downturn in Europe was
contrasted by rising numbers in car sales in the USA following the speedy
recovery as the 9% rise of durable goods orders shows (Prowse, 1993). Thus, the
momentum was characterized by the promising USA and an uncertain Europe. Apart
from the aforementioned factors, the American South region blossomed as car
manufacturers such as BMW were already set to build plants in South Carolina
(Dickson, 1993). Having produced mainly for the domestic market and in the
low-tech segment, the region was undergoing a transition towards high-tech and
motor industry (Harrison, 1993). Lower labour and land costs (Myerson, 1996),
skilled industrial workers (Bennett, 1993), financial incentives given by new
Governor Jim Folsom (Dickson, 1993) and the absence of a union (ibid) were all
factors that made Alabama an especially suited location for investments
activities.

2.3.           
Sociocultural Factors

 

The sociocultural
environment of the 1990s was – much like its economy – shaped by the new
possibilities and challenges brought about by the radical political changes that
had taken place. The opening of the Eastern bloc spawned sentiments of freedom
among a societies that had been living in the communist system of the Soviet
Union, and western Europeans were witnessing what seemed to be the victory of
the western system of capitalism and democracy (Halligan, 2014).

Especially in the USA,
the 1990s are nowadays considered an era of prosperity and relief about the
collapse of Communism and the thus averted crisis that had been feared during
the cold war (Andersen, 2015), and US pop culture could be seen emulated
everywhere (Vick, 1993). However, not all the USA were considered “trending”
with regard to the country’s southern states such as Alabama, which was still
battling the image of an underdeveloped “Redneck” region with little to no
education (Dickson, 1993). Making the transition to being perceived as a potent
industrial reason was therefore a central concern for the state as the
aforementioned incentives for industrial investment illustrate.

Moreover, the
international appreciation of German engineering has to be regarded: “German
craftsmanship” (Bennett, 1993) has always been a measure of quality (ibid),
with German cars being depicted as “wonders of technology” (The Economist, 1993b).

 

2.4.           
Technological Factors

 

A topic that surged in
the early 1990s was the development of electric cars. Having disappeared after
a gain in popularity during the 1970s oil crisis, the issue of sustainable
fuels was being brought up again in the context of for example the California
Air Resources Board (The Economist, 1992b).

There were considerable
advances in communication technology, with the rise of the internet as a new
form of data storage (The Economist, 1990) and, shortly after, the world wide
web (The Economist, 1992b) as a communication facilitator.

Furthermore, advances in
the development of navigation systems were made, and car manufacturers in the
USA (GM) and Japan were pushing towards their integration. These navigation
systems were not only investigated by the abovementioned, but also by space and
defence corporations in the such as TRW in the USA or Robert Bosch in Germany
(The Economist, 1993a). Having moved their main operations to the automotive
industry, TRW played a leading role in the development of passenger security
technologies, developing sophisticated airbag systems which thus far had only
been commonplace in the USA (ibid).  

 

 

 

 

3.      A
new Research and Development Centre is opened in Beijing (2014)

 

3.1.           
Political Factors

 

The central political
issues of 2014 in Europe were characterized by the humanitarian crisis in the
Middle East, the conflict between Russia and the Ukraine and the ramifications
of a eurocrisis that had weakened the continent. As one of the less damaged
countries in the Eurozone, Germany was broadly considered in the leading role
of helping the continent overcome these issues (Miller Llana, 2013). This task
proved to be rather complex as adding to the already existing problems came
tensions between EU members, mainly consisting of the southern member countries
seeing Germany as the cause of their miseries (ibid).

The intraeuropean
tensions were accompanied by the already mentioned Russian-Ukrainian conflict,
the Middle East issues and the NSA affair which had found its starting point in
the leaks of former agent Edward Snowden and created an atmosphere of caution.
The economic ramifications of past events did their part in spawning
protectionist measures (Donnan, 2014). These were found to be at a record
level, yet in different shapes as the most prominent issues were investigations
regarding dumping (ibid) or debates about state subsidies in which China as a
state with a history of complex systems of state owned enterprises (SOEs)
played a key role (Beattie, 2012). With his election to the country’s president
in 2013, Xi Jinping introduced various reforms aimed at China’s future
competitiveness. The measures taken were anti-corruption campaigns, the
liberalisation of the hukou system4, improvements in social
safety and the redesign of the market which was aimed at creating more
favourable conditions for private companies (Zoellick, 2014). These measures
represented a quite complicated aim: Transforming China’s authoritarian system
that had mostly relied on state regulated market tools into a liberalized market
(Morrison, 2017; DPA5, 2014).

 

3.2.           
Economic Factors

 

With the rest of the
world shaken by the financial crisis of 2008 and the resulting economic
downturn, the emerging economies that are known as the BRICS6 came out of the crisis less
wounded than Europe and the USA (Flanders, 2011). They were redefined in 2013
when at the 5th BRICS summit the conglomerate agreed upon an
establishment of a bank of their own (Wagstyl, 2013a). Not planned as a counterweight
to the World Bank, its priorities were the sustainable development of their
infrastructure and providing help in projects (ibid). However, the consent sent
a clear message to the corporate world: after the crisis, the World Bank and
IMF were battling accusations of being outdated (England, 2013), and the global
economic omphalos was being shifted. Eventually, the New Development Bank was
created in 2014 with a contingent reserve arrangement of $100bn (Pilling, 2014).
The lion’s share of this CRA was contributed by China as the by far most
powerful of the BRICS7.

It seems redundant to
mention China’s predominant role as the biggest economic potential in global
business, which is why Appendix 2 shall suffice as an explanation. Furthermore,
the obvious arguments for China as a manufacturing location due to the cheap
labour available (Hamilton & Webster, 2015) will not be explicitly
explained. Nonetheless, it shall be posited that the cheap labour argument has
become weaker in the light of increasing average wages (The Economist, 2012).

China was not entirely
unaffected by the crisis as its economy’s growth had been based on an
export-oriented model which in the years before had caused the immense growth
rates (Morrison, 2017). With the implications regarding China’s spot at the top
in consumption of much needed oil, steel, copper and aluminium in manufacturing
(Hamilton & Webster, 2015), a spiral was created which pointed to the unsustainability
of the model (Morrison, 2017). Therefore, the Chinese industry’s saviour would
be a transformation which would manifest its rank as the prime economic power
with the ability of not only attracting manufacturing related FDI, but also
creating an attractive and future-oriented domestic market. This development
was illustrated by manufacturers being drawn to economies where wages were
still at low levels, yet the long-term FDIs manifested China at the top of
global business (Wagstyl, 2013b). Therefore, the pulling out of export
manufacturers could be seen as an indicator of a general shift away from export
and towards long-term endeavours oriented at the domestic market and service
industry.

 

3.3.           
Sociocultural Factors

 

On a sociocultural level,
the changes in wealth distributions and the levels of unemployment that
skyrocketed immediately after the crash shaped societies in the USA and the EU.

In China, however,
unemployment rates stayed comparatively low8 and the growth of the
middle class continued, as especially in Beijing and the coastal area “the
well-to-do residents of those cities can now afford to buy imported luxury
goods, such as Mercedes” (Hamilton & Webster, 2015, p. 39). Ongoing
industrialization and urbanization9 have caused the population
to adapt western values and expectations with the population’s increasing
wealth leading to increasing consumerism as can be seen in rising car sales (Morrison,
2017).

These tendencies clashed
with another central concern of society at the time, as the calls for sustainable
energies became louder, also relating to issues of air pollution which
especially in China had led to social tensions and fears of political
instability (ibid). The level of pollution in China had been reached during the
time of its aggressive growth when environmental restrictions were practically
non-existent (The Guardian, 2014) which had been one of the reasons for which manufacturers
were choosing it as plant location (Hamilton & Webster, 2015). This issue
shall be revisited in the next section, where developments in the technology
sector will be examined.

 

3.4.           
Technological Factors

 

With public calls for
alternative energies and growing sales numbers of electric vehicles,
technological advances were mostly aimed at the design of eco-friendly vehicles
for the mass markets which by now had been made easier due to changes in
government policies concerning electric or hybrid vehicles (Mitchell, 2014). Their
market was growing, with more and more manufacturers following the examples of
the Japanese and the Americans (Foy & Bryant, 2013).

Another revolutionary
approach regarding information technology integrated into cars were the initial
ideas of self-driving vehicles that validated once again how the importance of
computers had grown over the years (Bryant, 2014). An interesting development
in the ADAS10
market was the position in which car manufacturers found themselves, being
second to suppliers of the relevant software who have made their entrance into
the vehicle business (Bryant & Sharman, 2014). Next to Google, corporations
like TRW (who by the time had become part of ZF Friedrichshafen) were on the
rise to becoming serious competition. Along the lines of rapid technology
development, expenditures for technological innovation shall not be forgotten,
as especially China invested heavily in its educational and R structure, breeding
a highly skilled workforce that could provide new solutions to question of
sustainable energy engineering and technological innovation (Morrison, 2017).
This was followed by the actual shift of FDI, as manufacturers discovered the
pool of highly skilled human resources in the BRICs (Hamilton & Webster,
2015) which would accelerate China’s shift to a technology think tank11.

 

4.      How
has the international business environment changed?

 

Since the early 1990s,
the global business environment has fundamentally changed. Yet, the PEST
analyses do show similarities between the events and factors of the early 1990s
and the late 2000s and early 2010s. This section will draw upon the
considerations made in the PEST analyses and present similarities, differences
and resulting conclusions about the business environment.

On the political level,
both moments in time were characterized by uncertainties. With the fall of the
iron curtain, a promising, yet uncertain era started in Europe. After the
collapse of Communism, it was yet to be seen how the newly formed states would
be integrated into the EC. At the centre of this question was Germany that had
suddenly gained a substantial land mass and faced the challenges of merging two
societies that were inherently different. The fall of the Soviet Union was
accompanied by a recession that was also taking its toll, and fears and
accusations of protectionism were circulating. The year 2014 and the ones
leading up to it saw the disputes between Russia and the Ukraine, both
countries that in the Soviet Era had been part of the communist system. The EU
was again shaken by a crisis, yet this time Germany’s role was very different:
being the centre of uncertainty and doubt in the early 1990s, it was now
trusted with a leading role in the way back from recession. This did not
prevent tensions: Germany was not only seen as the most potent power to bring
Europe back to old prosperity, it was also subject to accusations regarding its
own politics before the crisis, mainly by EU members that were the less
fortunate. Protectionism was considered on the rise again, although this time
taking other shapes.

Economically, the global
environment underwent a massive change. Both events were preceded by an
economic crisis, yet their results differ: while in the early 1990s, the USA
enjoyed a relatively mild landing, the outcomes of the 2008 financial crisis
were much more severe. The economies taking the US’ 1990s role were the BRICS
with China at the top. While both the USA and the EU faced drastic downturns, the
Chinese economy remained comparatively stable. In the aftermath of the crisis,
the BRICS states manifested their aim for economic power with the founding of
the New Development Bank, demonstrating vast resources and future potential and
posing a potential threat towards the Bretton Woods institutions. The
development of China can, to a certain extent, be compared with the Southern US:
known as low-tech and –cost regions first, both later experienced increasing
values when higher scale manufacturing came. On a much bigger scale and to a
wider extent, China has undergone a drastic transformation: before its rise to
“true” economic prosperity in the 2000s and 2010s, it had been mostly
considered favourable due to its cheap labour force and the accompanying
conditions as an export-based economy that was still lacking an open market.
Its rise was pushed by measures that favoured the creation of a domestic,
consumption-based, growing market, the sorting out of issues related to the
treatment of SOEs, the providing of more equality regarding foreign investors
and a shift towards the service sector, all coupled with the improvement of
infrastructure and trade policies. The main result of these activities was a
shift in FDI flows: manufacturers did now build plants in low wage economies
around China, while new FDI in China was aimed at long-term activities such as
R&D.

The main sociocultural changes
were similar as well: across societies, a rising awareness of environmental
thinking could be detected, which on a technological level led to efforts related
to alternatively fuelled cars. Just like in the 1990s, the Japanese
manufacturers and American GM were pioneers in the field. The greatest
difference of the two moments can be seen in the Chinese society: a rising
middle class that in the authoritarian system of earlier days had not existed
started to grow, now being able to afford western products and adapt a western
set of values regarding consumption. This development, however, stands in
contrast to the calls for “greener” societies across the globe.
Technologically, China has also made the leap to a leading economy, investing
largely in R&D and education, setting ground for a highly skilled workforce
that can outcompete its western counterparts. 

In summary, the changes
in the global business environment can be characterized by a shift of the
economic powers and the prevalence of the capitalist system: while China has
made its way to the very top of international business, it did so at the expense
of its system – with regard to the events of the late 1980s and early 1990s,
this can be deemed a smart choice. In doing so, and especially in precisely
applying the accurate measures, it has transformed from an emerging to a
leading economy that has gained MNCs’ interest for long term endeavours such as
R. As a result, China has turned from an emerging economy to a leading
one, now at one level with the traditional global leaders and extremely
attractive for future long-term engagements.

1
Research and development

2
German Democratic Republic/ East Germany

3 In
this work, the terms “EC” and “EU” will be used according to the time frame in
question.

4 A
system that would link people to their places of origin, prohibiting them from
living in e.g. cities (Morrison, 2016; Zoellick, 2014)

5
Deutsche Presse Agentur

6 Brazil,
Russia, India, China (O’Neill, 2001), South Africa was added later (O’Neill,
2011).

7
See Appendix 1.

8
For a comparison, see Appendix 3.

9
Helped by the loosening of the hukou

10
Advanced driver assistance systems (Bryant, 2013)

11
For a comparison of R expenditures, see Appendix 4.

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