Environment of international business and its significance

Differences in business environment between regions and nations may call for different business strategies. Internal Environment External Environment Domestic environment Foreign environment Global environment A strategy that is successful in one market may not be successful in another, where the business environment is very different. Eg : P & G in japan.

Economic Environment

Economic environment
The host of most important economic factors which affect business are : Nature of economy Low income economies High income economies Middle income economies Developing and developed economies Some special factors are Least developed countries ( Most backward and disadvantaged) Newly industrializing economies ( Very high growth rate over a long period of time ) Transition economies ( transition from centralized to market economy )

Some of the poor countries like India are among the largest economies in the world. Several developing countries are very vibrant and growing fast. Structure of the economy : Economy has three broad sectors namely , Primary ( mostly agricultural ) Secondary ( industrial ) Tertiary ( service sector ) Economic policies : Industrial policy Trade policy Foreign exchange policy Foreign investment and technology policy Fiscal policy Monetary policy

Social/Cultural Environment

Social/Cultural environment
Culture is the sum total of societal behavior. The cost of ignoring the socio-cultural environment in business could be very high. Elements of culture : Knowledge and beliefs Ideals Preferences Some of the complexities involved in multicultural business : CULTURAL ADAPTATION  The message of cultural adaptation for IB is that the firm and its people will have to adapt to the environment of different markets.

 CULTURAL SHOCK  Environmental changes sometimes produce cultural shock-a feeling of confusion, anxiety, insecurity caused by strangeness of new environment. CULTURAL TRANSMISSION  Elements of culture are transmitted among the members of the culture, from one generation to next, and new members admitted into that culture.  Cultural transmission takes place by means of symbolic representation. Eg , TV, literature, film, advertising, marketing etc play very important roles in cultural transmission.  Transmission facilitates cultural diffusion i.e., the spread of cultural elements from one place to another. At high educational levels transmission and diffusion are easy in a well organized communication system.

 CULTURAL CONFORMITY  Individuals in a culture tend to either conform to the cultural norms or to deviate from them Eg, a student who abides by the rules of his school discipline, does his work regularly and studies properly is conforming to his role obligations.  The knowledge of the nature and extent of cultural conformity and deviance will sometimes be helpful in business decision-making. CULTURAL LAG  Important factors that contribute to cultural lag include ignorance, wrong notions, conservatism, sentimental factors and political factors, interests.  It is necessary to overcome cultural lag to successfully market a new idea (including service, product and technique). It s a blunder to introduce a product to a market which is not ready to adopt to it.

 CULTURAL TRAITS  Low-context and high-context cultures  Masculine and feminine cultures  Universalism Vs particularism  Neutral Vs emotional And so on.. CULTURAL STEREOTYPES  Cultural stereotyping is an attempt to highlight the homogenetic characteristics of a group. Eg, Nationality : American Stereotype : Brash, materialistic, A society plagued by crime and violence, a cowboy culture where indivuduals are obsessed with time and deadlines.

Religion
Religious factors, often very sensitive, need to be paid attention by business. Attitude towards work and wealth, working timings and holidays demand and consumption patterns etc. are influenced by religion.

Language
Language and communication are very sensitive in the business environment . For example : A multinational blundered in the middle east when its detergent advertisement picture soiled cloths on the left, the box of detergent in the middle and clean clothes in the right.

Culture and Organizational Behaviour

The cultural impact on international business is reflected by several basic beliefs and behaviours. One of the important reasons for the failure of number of companies in foreign markets is their failure to understand the cultural environment of those markets, that is, consumer preferences, habits and beliefs, and suitably formulate their business strategies.

Etiquette
Economic environment is one of the important determinant of product and pricing strategies.

Culture United States Asian British French Latin American Middle Eastern German

Types of Handshake Firm Gentle (shaking hands is unfamiliar and uncomfortable for some) Soft Light and quick (not offered to superiors); repeated on arrival and departure Moderate grasp; repeated frequently Moderate grasp; repeated frequently Brisk and firm; repeated on arrival and departure

Demographic Environment

Demographic Environment
Business(market, demand) is people in the sense that the demand depends on the people and their characteristics income levels, tastes and preferences, beliefs, attitudes and sentiments, host of other demographic factors. Demographic trends across the world are an important determinant of global business.

Important demographic bases of market segmentation includes: Age structure Gender Family size Occupation Education Religion Race Nationality

Population size The size of population is one of the important determinant of demand for many products. Countries with small population are generally not attractive for business. However, small firms may find promising niches in these markets. Developing nations like India, enjoy a demographic dividend, that is, a higher proportion of people in the working age. The changes in the age distribution have a lot of implications for business. Several pharmaceutical companies, for example, are paying a lot of attention to the potential requirements of the aged population.

Political Environment

Political environment includes the characteristics and policies of the political parties, nature of constitution, government system are among the factors of utmost importance in market selection and business strategy formulation. The political environment includes: Industrial policy Policy towards foreign capital and technology Foreign trade policy

As against the past suspicion against foreign capital and technology, a large number of developing countries, are trying to woo foreign capital and technology. However, there is a lot of difference in restrictions and regulations of business, scope of foreign business, trade policies, procedures, incentive system and so on. Hostilities between some countries affect business in developing countries also. For example, Arab countries did not do business with Israel. These countries insisted that countries who wanted to do business with them must produce Israel Boycott certificate.

Regulatory Environment

Each region has a particular regulatory environment in which the major world players compete for market share. There are wide variations between countries in the policies and regulations regarding the conduct of business. For example, certain trade practices or strategies allowed in some countries may be regarded as unfair by the laws of some other countries.

Categories of laws
An international business firm will confront home s, foreign and international laws. International laws, treaties and conventions etc. Laws of foreign countries. Laws of home country (India) related to international business

Settlement of disputes
Disputes are common in international business. There are two avenues for the settlement of disputes Judicial dispute settlement dispute will be solved by judicial court. It often takes long time, very expensive and strains the relations of the parties involved. Extra-judicial dispute settlement if parties agree on conciliation, they want an amicable settlement of their dispute with active assistance of a third person, the conciliator, and hope an amicable settlement can be achieved.

Regulation related to products

Product Standards Many countries may have its own products standards or specifications. For example, ISO 9000 accreditation is necessary for certain products for selling in markets such as European Union. It is mandatory to make certain disclosure about the product such as ingredients, shelf life, possible adverse effects etc. Product liability If a person suffers any damage because of a product, he has to prove that the producer was at fault in respect of the defect in the product causing the damage. Packing and labelling regulations Many countries have their own regulations regarding packing and labelling.

Natural Environment

At the core of social system is the natural environment and the available technology. The natural factors and available technology indicate the potential for the development of business or economy of the region/nation. The natural environment the source and support of everything used by businesses, raw material, energy source, every lifesustaining factor determines what can be done in a society and how institutions can function. In short, geographical and ecological factors, such as weather and climate conditions, locational aspects in the global context, port facilities, are all relevant to business.

Technological Environment

Technology systematic knowledge to manufacture a product, application of process, rendering a service that are necessary to carry on or to improve existing production and distribution of goods and services and also entrepreneurial expertise and technical know-how. The type of technology in use, level of technological developments, the speed with which new technologies are adopted, technology policy etc., are important to business.

Appropriate Technology and Technology Adaptation

Appropriate Technology and its Adaptation When different technologies are available, it needs to be ensured that the technology chosen is the appropriate for the business. This could be due to reasons such as differences in natural factors like climatic/weather condition, soil conditions etc., difference in income level, demand conditions, customer characteristics. Technological appropriateness can vary between environments. Situations may require adaptations or modifications to technology. Modifications may help companies to do better than users of technology in its original form.

Transfer of Technology

Technology transfer is the process by which commercial technology is passed on to developing countries. While technology is transferred, some of the issues might crop up. They are cost, appropriateness, dependence and obsolescence are some of the issues comes with transfer of technology.

Product technology Provision of propreitary know-how, transfer of product designs, technical consultations to help them master new technologies, collaboration in R&D. Process technology provision of machinery and equipment to suppliers, technical support on production planning, quality management, inspection and testing, visits to supplier facilities to advise on layout, operations and quality. Organizational and managerial know how assistance with inventory management and use of just-in-time and other systems, assistance in implementing quality assurance systems, introduction to new practices such as financial, purchase and marketing techniques.

Thank you