International Business Environment
International Business Environment
International Business Environment
International Business
When business activities are performed on an international level, these can be termed as international business. Basic functions, processes and techniques of international business are essentially the same as those involved in domestic business. What is different is the environment within which these functions are performed and processes are carried out.
International Business environments are unfamiliar and different from the domestic environment
These variations may need adaptation for business success.
Besides other factors Export promotion measures and incentives in country have been motivating factor for the firms to internationalize their business operations.
Since these factors operate at the national level, firms are generally familiar with them and are able to readily react to them.
Because of being operative in domestic markets, firms are generally not aware of these factors and their influence on business activities. The problem gets more complicated with increase in number of foreign markets in which a firm operates.
Because of environmental differences, business strategies that are successful in one nation might fail miserably in other countries.
Foreign market operations, therefore, require an increased sensitivity to the environmental differences and adaptation of business strategies to suit the differing market situations.
Global environment exerts influence over domestic as well as foreign countries and comprises of forces like world economic conditions, international financial system, international agreements and treaties, and regional economic groupings.
World-wide economic recession; international financial liquidity or stability; working of the international organizations such as World Trade Organization (WTO), International Monetary Fund (IMF) and World Bank are some of the examples of global environmental forces having world-wide or regional influences on business operations.
Both these decisions are strategic in nature and are greatly influenced by the environmental forces Firms select those countries as their target markets which have sufficient market potential Market potential in turn depends upon geographic, economic and cultural environments prevailing in the foreign countries For example: Demand for fans will be more in countries which are geographically located in hot zones and where per capita income is high enough for the people to afford purchase of fans. Besides climate and sufficient income, electricity should be available to make the fans workable.
Answers to these and other questions require in-depth analysis of the prevailing environments in foreign countries. Since the environments differ, firm cannot be much successful by falling back upon its domestic decisions and practices.
FOREIGN ENVIRONMENT
Foreign environment consists of geographical, economic, financial, socio-cultural, political, legal and ecological forces. A firm needs to examine these components of the environment for each one of the foreign countries in which it operates. All the components-and elements of the foreign environment might not be relevant to a decision maker. Much depends on the nature of the firm and its decisions. For a multinational corporation interested in setting up a manufacturing plant in a foreign country, geographic as well as socio-cultural, legal and political environments would be as important as the economic environment.
Geographic Environment
Geography refers to a country's climate, natural resources and people. Geographic features of the Foreign country also influence the nature and characteristics of a society. It also affects demand pattern of the people living in the country. Geography is a major contributory factor to the trade centers and routes.
Geographic Environment
Different climatic conditions (viz., rain, snowfall, wind, temperature, humidity, etc.) give rise to demand for different types of products. It is largely due to climatic differences that people differ in their housing, clothing, food, medical and recreational needs. Rolls Royce cars from Britain, for instance, required extensive body work and renovations in Canada due to four or five months of virtually continuous snow in Canada.
Geographic Environment
Geographic conditions also affect a firm's plant location decision. A firm prefers to set up its manufacturing plant where raw materials, energy and labor are cheaply and abundantly available. Foreign country's nearness to other markets and its strategic location on major trade routes are other equally important considerations.
Economic Environment
Among all the uncontrollables, economic environment is perhaps the most important factor due to its dynamic nature An analysis of economic environment enables a firm to know how big is the market and what its nature is. Answers to these questions in turn determine whether a firm should enter a specific foreign market, and if yes, what strategies it should use to successfully run its business operations.
Economic Environment
Status of Economic Development: Economic development is directly related to the development of marketing in a country. Countries characterized by high levels of economic development not only have high demand for a variety of products, but also have better infrastructure and more developed marketing systems. Competition is also high in developed countries. In the less developed countries, on the other hand, not only demand is low, but infrastructure is also poor. It, therefore, becomes quite difficult and more expensive to do business in such nations.
Economic Environment
Income: Income is an important indicator of the country's level of development and also its market size. Gross national product (GNP) and per capita income are among the major measures of income. While sales of most of the industrial goods and capital equipment generally co-relate with GNP, demand for consumer products depends on per capita income. Though per capita income is a useful measure, it is not a full-proof measure of the country's development and prosperity. What is more relevant is the distribution of income.
Economic Environment
Besides income, one should acquire information about the sectoral distribution of the GNP as it is an important determinant of kinds of goods in demand in a foreign country. If the majority of a country's GNP comes from agriculture, it implies that the country is agriculture based and it shall have a good demand for agricultural inputs such as seeds, fertilizers, pesticides and agricultural machinery and tools. An industrial nation with relatively higher dependence on manufacturing, on the other hand, shall have a good market for raw materials, plant and machinery, and also for a variety of consumer durables and non-durables.
Economic Environment
Expenditure Pattern: Data on expenditure patterns are useful in judging as to how the money is spent on different item and which products receive more weightage. Infrastructure is another vital dimension of the country's economic environment. Infrastructure refers to various social overheads such as transportation, telecommunications, commercial and financial services like advertising, marketing research, various media, warehousing, insurance, distribution, credit and banking facilities. Absence of adequate infrastructure not only hinders country's development but also affects firms' costs and capacity to reach various market segments.
Financial Environment
Monetary and Fiscal Policies: Inflation, interest rate, various kinds of duties and exchange rates are the variables related to the country's monetary and fiscal policies and have a substantial impact on the costs and profitability of business operations. These variables also Influence a firm's decision to move funds from one nation to another.
Financial Environment
Foreign Investment Policies: Each country has its own commercial and foreign investment policies which must be studied in detail to ascertain country's openness for trade and investment with other countries. A proper understanding of these policies can be quite helpful in ascertaining what tariff and non-tariff barriers the particular country uses to protect its domestic industry from foreign competition.
Financial Environment
Balance of Payments Account: A country's balance of payments account is another major source of' information about the country's foreign trade and foreign currency reserves. Current account & Capital account transactions
Socio-cultural Environment
Business is as much a socio-cultural phenomenon. Per capita income in two countries may be the same, yet the consumption patterns in these countries may differ. Socio-cultural forces have considerable impact on products people consume; designs, colors and symbols they like; dresses they wear and emphasis they place on religion, work, entertainment, family and other social relations. Socio-cultural environment influences all aspects of human behavior and is pervasive in all facets of business operations. Some of the important elements to understand a country's culture are: language, aesthetics, education, religions and superstitions, attitudes and values, business customs and practices.
POLITICAL ENVIRONMENT
It is rightly said that a foreign business firm operates only as a guest and at the convenience of the host country government. To gain an insight into a foreign country's political environment, one needs to analyze factors such as current form of government and political party system, role of government in the economy, political encouragement to foreign firms and political stability. Current form of government: Single party government is considered to be more stable and favorable for business than the multiparty government. Role of government: Political ideology and government attitudes towards business. Regulatory roles and involvement in business. Political Stability: Due to huge and irreversible investments
LEGAL ENVIRONMENT
Problem for the international firms is that the laws that they face in their home countries might be different from those encountered in the host countries. Advertising laws in Germany, for instance, are so strict that it is best advised for the international marketer to get himself good legal counsel before framing his advertising strategy. Similarly there exist laws in European countries preventing promotion of products through price discounting. These laws are based on the premise that such practices differentiate buyers. Different laws regarding decisions like location of plant, level of production, employment of people, raising money from the market, accounting and taxation, property rights including immovable property and patent, agreements etc.
LEGAL ENVIRONMENT
Competition related laws: In the United States, for instance, antitrust legislation influences all mergers, takeovers, and business practices which are in restraint of trade. Gillette, for example, was prevented from taking over Braun A.G. of Germany which was an electric razor manufacturer on the grounds that it would distort competition.
ECOLOGICAL ENVIRONMENT
Ecology refers to the pattern and balance of relationships between plants, animals, people and their environment. Earlier there was hardly any concern for the depletion of resources and pollution of the environment.
But in recent years, the magnitude and nature of the 'pollution overload' have assumed such alarming proportions that pressures have built up all over the world to do something urgently. In almost all the countries, there exist today legislations and codes of conduct to preserve the earth's scarce resources and put a halt to any further deterioration in the environment.
ECOLOGICAL ENVIRONMENT
Corporations today are judged in terms of not only financial returns, but also conservation of environmental resources and reduction in pollution levels. Very recently, the United States government imposed a ban on exports of marine products from countries including India which did not have special devices fitted into fishing trawlers to free the tortoises trapped during fishing expeditions. Similarly, restrictions have been put on garment exports using cloth processed through the use of AZO dyes.
Germany today is perhaps the country with most stringent environmental laws in the world.