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Archita Bhattacharjee
| Updated: 16 Oct, 2020 | Category: Business Plan

International Business Environment: Importance, Scope, Forms and Globalization

International Business Environment

International business is a facet of the modern economy by which the technical advancement also made it possible for organizations to execute their business on a global basis. International business refers to as trading of goods and services in a worldwide market, therefore the international business can also recognize as the globalization of trade. Moreover, the major learning objective is to be familiar with the complex factors that may impact an organization’s strategic decision to enlarge it internationally.

Why is the International Business Environment Important?

International Business is quite an essential term for a country’s economy. All of the world’s strongest as well as wisest economies like Germany, Japan, Switzerland, etc as per the Operation for Economic Co-operation and Development (OECD) are concerned in international trade practices and have the highest standards of living.

They got high volumes of imports and exports while countries like Spain, Greece, Italy, etc have lower ratios of international trade and are in front of some serious economic problems and challenges. Therefore, we can say that the International Business environment plays a vital role in the growth and development of a nation.

What is the Scope of International Business?

International business and its environment have wide scope because it focuses on the meticulous issue and opportunities as organization operate at global scale that emerges in business environment. International business is known to be generalized field of business, modified to quite exceptional appearances in global environment.

The major characteristic feature of international business is subject to rapid change as compared to the domestic environment as international organizations operate in unsure business atmosphere. There are numerous factors and environmental variables that are important in international business such as foreign exchange markets, foreign legal systems, cultural differences, and different rates of inflation are either basically irrelevant to domestic business or concentrated in complexity and range as to be of smaller significances.

Moreover, the domestic business is also a limited case of international business. The characteristic feature of international business is that international firms activate in environments that are extremely uncertain where the game rules are often contradictory, ambiguous, and subject to fastest change in comparison to the domestic environment.

What are the Different Forms of International Business Environment?

Different Forms of International Business Environment

Political Environment in International Business

The Political Environment is a vital part of the international business environment that focuses on the following aspects:-

  • Type of Government 
  • Political hazards in the respective countries
  • Government connection with the business fraternity.

In executing the cross border trade in International Business Environment, it indicates dealing with different government constraint, probable risk, and political scenarios. The political system has been categorized into parts such as one-party states, dictatorships, constitutional monarchies, and one-party states. Consequently, while planning a business plan for the overseas location, one has to take the following aspects into account. Those are as follows:-

 Political System Related to the Business

  • Government approach towards the business 
  • Legal obligations for acquiring specific licenses to run a business. 
  • Limitations on obtaining technical knowledge, raw material, and capital goods.
  • Constraints related to the exports of goods
  • Constraints related to the distribution and pricing of goods
  • Probable constraints for establishing a business

Economic Environment in International Business

The economic environment of the country is yet another key element that affects international trading in one way or another. The economic environment exhibits the country’s potential for fostering foreign trade. Nations with weaker GDP are less likely to facilitate the platform or any framework that supports international trading in International Business Environment. The economic environment could be the deciding factor for someone who is expecting a higher ROI against the trading of their goods and services. 

In general, all countries have a distinctive economic environment. Under-developed economies, normally lack better infrastructure, technical advancement, healthcare[1] facilities are coined to be extremely important for the well-being of a particular business. It means that not all nations support international trading due to their undermined economic situation, such as countries like Somalia and Sudan is not favorable for executing foreign trade because of their subpar economic conditions and ongoing crisis. 

Key Parameters to be Considered Related to Foreign Trading

  • Facets of the economic system and its bonding with business sectors
  • GDP and per capita income (decisive factors)
  • Taxes implications on foreign trading
  • Raw material and manpower availability 
  • Financial resources 
  • Wages structures 

Technological Environment in International Business

The technological Environment demonstrates the country’s potential in terms of the availability of raw materials and machinery required for manufacturing the products. In general, no companies can control the external environment; therefore seamless adaption is something that can keep the firm ahead of the curve. 

Companies who are willing to make a swift transition to newer technology are more likely to capture the potential market as quickly as anybody else. In addition to that, the quicker adoption of new technology ensures a competitive edge. The paradigm of global trading deters the approaches that advocate the non-acceptance of technological innovation. The swift adoption of new technology could help the firms to gain a competitive advantage and reap higher returns over investment in domestic as well as international market. 

While making an in-depth analysis of the technological environment under International Business Environment, the organization must take the following parameters into account without exception. Those are as follows:-

  • Degree of technical development in the nation as a whole or particular business sector
  • The pace of technological obsolescence 
  • Sources from which technology is originated. 
  • Modes and constraints for technology transfer
  • The rate at which technology is absorbed.  

Cultural Environment in International Business

The cultural environment is the most complex and tricky component of the international business environment. The cultural environment is a demonstration of general believe and the values of the people residing in a particular country. You must also note that believe and the value is not inculcated overnight as their formation is based on years of history, religions, and language. 

While this is a purely a generalized description, some renowned experts had explored this very topic and concluded that Cultural environment has four vital facets such as:

  • Individualism: It is a degree to which a country values individual decision in making of any action.
  • Power distance: It represents the country’s approach toward acceptance of differences in power. 
  • Uncertainty avoidance: It represents the country’s willingness to confront uncertainties. 
  • Masculinity

It is hard to believe, at least from general perception, that cultural aspect could be able to affect global trading in many ways. Moreover, the majority of the businesses that fail to survive in the international market often found of underestimating the impact of this specific element. Thus; overlooking such a trait could leave any business in a deserted situation. 

While analyzing the cultural attributes, one must look into the following aspect, which are as follows:-

  • Society’s approaches toward businesses.
  • Influence of cultural factors on the product’s acceptability.
  • The lifestyle of people in a specific domain
  • Potential regarding the acceptability of change
  • Value or believes attached to specific products
  • Consumption pattern of the buyers.

Read our article:How to Prepare a Business Plan? – A Complete Guide for startups

Global Connections Weighing the Strategic Management under International Business Environment

  • The contemporary economical management is globally connected, and growing more in every day. Considering the pros and cons of international expansion is also known to be a key strategic consideration under International Business Environment
  • Moreover, the Multi-National Companies or Enterprises are the primary players in international business which is present in virtually every industry these days.
  • Global synergies, global concentration, and other strategic global motivations include in the entry modes for international businesses.
  • Also, the organizations should consider technological, economic, legal, socio-cultural and environmental factors with the complexity of international business environments.
  • Determining a necessary rate of return for an international expansion and weighing the risks and potential returns is a key feature of global financial management.

Multinational Enterprise as Relevant Facet

Multinational Enterprises are known to be organizations which operate across multiple political borders in the world. According to the perspective of business, the primary serving in an international business environment is the MNE (multinational enterprise), which is a company that pursues strategic achievement in global production and sales (Cross-border). There are many number of examples of this type of firm which is constantly growing these days. The number of international players in the majority of markets is constantly on the rise From auto manufacturers like Honda to fast food chains like McDonald’s to smartphone designers like Samsung, RedMi.

What do you mean by Global Expansion & External Factors Impacting Expansion?

You must note that the global expansion is relatively must costlier and complex by its operation /nature. Organizations must have strong reasons for developing a global strategy to offset these costs and risks. These reasons in general fit one (or more) of the following three strategic areas:-

Global Concentration

The entrance of a market where competition is relatively scarce and demand is high will be depending upon the competitive concentration of a given industry.

Global Synergies

It is quite evident that some organizations have highly well developed competencies that are easily scale, in which the global expansion means natural synergy.

Global Strategic Motivations

Some other reasons also may arise for the expansion to a given country may exist strategically, such as acquiring strategic assets or developing new sourcing sites for production in a given region.

External Factors Impacting Expansion

The management must weigh the external factors that will showcase the success during a global transition before considering such a significant strategic move. Those particular elements are given below:-

Socio-cultural: Highly Impacted

The social environment as an external factor in impacting expansion of a given region can have a significant impact on success of the business. Food companies are highly impacted by this in which certain cultures prefer certain types of foods and values associated.

Geographic/Environmental: Resource-Rich Areas

In the context of geographical/environmental will include as example of the skiing equipment, which may not do so well in regions with no mountains and snows. It also means that the oil companies can only source oil from resource-rich areas.

Legal/Political: Ease of Doing Business

Complex tax rates, and/or unclear legislative practices may have high barriers to entry in some countries making ease of doing business critical.

Economic: Terms of Currency

The economical standard of living varies from region to region, and recognizing the value of a given market in terms of currency, spending power and market size is critical to choosing upon expansion.

Technology: Prioritize to Entry

Access to electricity, internet, clean water and a variety of other technological reliance should get prioritize to entry if the organizational operations rely on quick access. Considering the pros and cons of entering a given reason, and manipulative projected costs, cash flows, and required returns on investment are central financial contemplations to entering in a new international market.

What are the Major Problems or Issues in International Business Environment?

Calculating the overall significances, the investigators have found that they face numerous challenges and issues when firms operated at international scale. International businesses must comply with the local regulation and rules in which they operate and set up. When the organizations try to expand, they have foreign languages and complexity to gather information about foreign countries their business in other countries. Moreover, they have to deal in foreign currency also, which is again known to be a severe problem as associated.

When working in other countries, the exchange rate may be varied & their culture and social value should also be taken in account for consideration. You must also take the fact into consideration that the risk factor is high in overseas business operations which includes commercial, political, and financial. It is very difficult to understand the demand of the international market Communication and control of international business is complicated.

One of the major issues associated in the international businesses is trade restrictions. By saying this, a trade restriction means particular import controls, which is known to be a very significant problem in the international dealer faces. It has also been observed that trade practices and customs may differ in between two countries or nations. A few of the issues in international business environment include ethical, social, environmental and legal issues.

Benefits of the International Business Environment

Benefits of the International Business Environment

Even though the firms have to undergo a lot of problems when expanding their business internationally, still the international business brings countries collectively. This process makes the world as global village & creates an atmosphere of unity. It exchanges the ideas, information, service, and capital across the country’s borders.

This has encouraging outcomes in terms of greatest use of human capital that enlarges employee opportunity in the global market. There is equal growth of price stability, wealth, availabilities of goods & services to each and every one. It also brings new environment of development, alliance, stability, affluence, modernization and technologies in the world. You must also note that foreign markets create a larger share of the total business of a lot of firms that have wisely sophisticated markets aboard.

The ultimate benefits of export in the international arena are clearly acknowledged in today’s time. It is because the imports can also be highly helpful to a country since they constitute reserve capacity for the local economical market. There is no incentive for domestic firms without imports to moderate their prices. The lack of imported product results in inflation and excessive profits for local firms as the alternatives forces consumers to pay more.

This particular development usually acts as introduction to workforces demand stipulation for higher wages, further intensifying the problem of inflation in the economy. Saying this means that the prospects of a business depend not only on its possessions as well as resources but also on the environment too.

The MNCs i.e. multinational corporations need to involve themselves in systematic collection of information on all environmental dimensions. It is to adapt to the international business environment and the economic agents in the local markets, identifying the more vulnerable internal areas, processing this information to enhance environment knowledge, and external opportunities. It must address towards a better environmental fit; and ultimate execution of the “best practices” more familiar to the identified environment.

Conclusion

In previous times, a competitive environment differs from nation to nation. Herewith, it majorly depends on the economic, political, and cultural environment of the given country. Competition can initiate from many sources, be it from the compliance area or political landscape of the specific demographic. Well, the list for this could be exhaustive. While figuring out a foreign trading strategy, one must blend his approach with all the said factors because it will help in finding realistic constraints for the business.

To summarize the above said, the globalization of business let it be smaller or bigger and markets results in the global business environment is worried about the context of the international trade transaction under International Business Environment. In international business, there are many issues like economic policies of particular nation, language barrier, cultural differences and higher complexity of uncertainty and risk because organizations is not operating in identifiable environment but rather with an international business environment. International business environment has many positive aspects in spite of various issues, such as it contributes new technology, infrastructure development, managerial skills, creating jobs, providing better services, and bringing in investment capital from other countries by exporting products.

You must also note that global business demands that companies run their worldwide operations efficiently and on the basis of corporate integrity, honesty, following ethical standards and accepting the sense of responsibility. Feel free to ask any questions regarding the international business environment; CorpBiz shall be at your assistance to provide any advice on International Business Environment.

Read our article:Benefits of Startup India Registration in India

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Archita Bhattacharjee

Archita Bhattacharjee is working as Legal Analyst (Team Lead, Research & Development) at Corpbiz and has proving experience about 2 years as Corporate Legal Researcher in law firms as well as Rajya Sabha and authors in diverse publications. She has refined her skills by representing India in Paris, France and the University of Leiden over implications of International Humanitarian and Criminal Law being certified member of many Legal Centers.

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