What are the factors affecting International business environment

Overview

In today's globalized world, every company needs to be known internationally as well. For this, the company sets up its operations in many nations. These are known as Multinational Companies (MNCs). Try our service for International company registration. But before setting up abroad, some very key features need to be taken care of. These constitute the international business environment (IBE).

Classification of International Business environment

Micro-environment

These are the forces of the international business environment that affect the functioning of the firm directly. This includes the suppliers, various market intermediaries and service organizations such as middlemen, transporters, advertising and marketing research agencies, competitors customers and the general public.

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Macro-environment

Macro-environment is a broader term that affects the firm's international business environment as well as the micro-environment factors. These key features of Macro-environment that impact the international business environment are Political, economic, cultural, technological, competitive, etc.

Political environment

Being one of the most notable features of the international business environment, it constitutes the type of government, the relationship between the government and the business & the political risk in the country. There could be a dictatorship, one party system (single party system), democracy, constitutional monarchies and so on. So, on that note, the company should keep in mind the following

• What is the approach of government towards business, restrictive or facilitating?
• Whether there are any legal restrictions like licensing, or reservation to a specific sector like the public sector, private or small scale industries.
• What are the procedure and legal formalities of setting up a business?
• If there is any restriction on exporting some product or services. There is an export procedure that is followed in India you should check out.
• Whether there is any restriction on pricing and distribution of goods
• If there is any restriction on importing technical know-how, capital goods, and raw material
• Any facilities or incentives offered by the government. Like there are some subsidies given to MSME of India

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Economic environment

It is a factor of the international business environment that attracts foreign businesses to be set up in the nation. A country could be less developed (Third world), developing or more developed (industrialized). A less developed country is a poor country, a developing country is moving from poor to a rich and more developed country is a rich country. It all depends upon the infrastructure, education, technology, healthcare and so on. A country develops its GDP annually that shows its progress economically. But a more thorough approach is needed to identify some factors and for this, the company needs to ask what is

• The economic sector to enter the business
• The stage of growth of the country and how fast is it growing
• Level of national and per capita income
• Incidents of direct and indirect taxes
• The infrastructure facilities available
• What are the sources of financial resources and their costs?
• The availability of manpower-managerial, technical & workers available & their salary & wage structures.

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Technological environment

This is an external factor affecting the international business environment of the company. In the 20th century, humankind has witnessed great technological advances and this is the same case in the 21st century. So, the nations can't change this scenario but can adapt to it. Usually, nations accept all these advances as this would mean the country's growth in the long run and they want the latest technology in the first place. But, some nations due to their cultural, social or political factors may detest these changes. So, a company needs to make sure the following

• What is the level of technological development as a whole and in the business sector?
• The speed of technological advancement or technological obsolescence
• If there are any restrictions to this advancement and what are the facilities to ensure this
• What are the sources of technology?

Cultural environment

Being one of the most critical and difficult factors of the international business environment to understand, this could be harmful for the company's reputation if it doesn't take serious measures to it. This environment includes the history, language, religion, geographic location, government, and education. Cultural values are described by Kluckhohn & Strodtbeck as something that is a shared belief of what is right and wrong for one group. For the nation's cultural environment, this means a shared belief by the nation of what is right. For this analysis, Hofstede in1980 developed a mechanism.

Hofstede mechanism

This mechanism constitutes 6 mechanisms namely

Individualism vs Collectivism

This shows the degree to which a nation gives importance to individual action and decision making. In a highly individualistic society, a person is not responsible for other's actions and there is a weak interpersonal connection. Whereas in collectivism, a person is supposed to be loyal to a certain group and in return of this the group will defend their interests.

Uncertainty Avoidance

It indicates the nation's limit to accept uncertainty and deal with it. In some nations with high uncertainty avoidance, people try to control their lives as much as possible and if they can't control it then it becomes unbearable to them.

Power Distance

It is the degree to which a nation accepts and sanctions differences in power. High PDI (power distance index) indicates that the power is hierarchical and people understands their position in the nation. But in low PDI, it indicates that the power is widespread and it is unacceptable if there is an uneven distribution of power.

Masculinity/Feminity

This shows the gender gap in the country. In masculine societies, the role of men and women overlaps less and society accepts men who are assertive. Their roles are defined. In feminine society, their roles overlap. Greater importance is placed on good relationships with supervisors or working with cooperative nature.

Long Term/Short Term Orientation

In the long term orientation, the nation is more pragmatic, modest and thrifty. Whereas in short term orientation, the nation places more importance on principles, consistency, and truth, and are typically religious and nationalistic.

Indulgence Vs Restraint

Finally, the sixth element affecting the international business environment shows the country's intention towards people's gratification, happiness, and life. A country with high IVR allow or encourage free gratification of people and vis-a-vis.

Competitive Environment

Competitive environment changes from one country to another. This is because of the various factors described above like political, cultural, economic or technological. When a company moves to a new environment, it becomes hard to identify the source of competition. It could be from a private institution or public, local or global, large or small company, traditional or new competitors. For this environment as well, the company should prepare itself beforehand.

Benefits of the international business

• It brings countries together. It unites the country making the world a big global village.
• It increases employment opportunity as it results in the exchange of ideas, information, service, and capital across borders.
• There is equal growth in terms of wealth, price stability, availabilities of goods and services to each and every one.
• This also brings a new environment of alliance, development, stability, affluence, modernization, and technology across the globe.

Major issues in the international business

• The businesses have to conform to the local rules and regulations in which they operate in
• There is a possibility of faulty information exchange due to the language differences
• For this, the exchange rate of the country has to be closely checked, which changes daily.
• Communication and control becomes complicated

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