effects of environment on international business

8/2/2019 Effects of Environment on International Business

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ACKNOWLEDGEMENT

This is to acknowledge with thanks the help, guidance and

support that I have received during this project writing. At the

outset, it is my duty to express my deep sense of gratitude to the

University of Petroleum & Energy Studies for extending me the

opportunity for undergoing this project providing all the

necessary resources and expertise for this purpose.

I am grateful to Mr. HR.ROY for his encouragement, cooperationbenevolent guidance, keen interest and critical appreciation.

Sumit Kumar Banduni

BBA (Oil and Gas Marketing), UPES

Dehradun


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International business1. The exchange ofgoods and services among individuals and

businesses in multiple countries.

2. A specific entity, such as a multinational corporation or

international business company that engages in business

among multiple countries.

International business deals with business activities (bothproduction and services) that cross the national boundaries.

This activity includes movement of goods, services capital or

personnel, transfer of technology, etc.

Functionally, by business we mean those human activities,

which involve production or purchase of goods and services

with the object of selling them at a profit. Todays world is anera of Global Village or specialization. A particular country is

not self-dependent for producing goods and services. One

country depends on another for goods and services as well as

one area of a particular country depends on another area for

meeting demand. This interdependence creates internationals

Business.
http://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/goods-and-services.htmlhttp://www.businessdictionary.com/definition/individual.htmlhttp://www.businessdictionary.com/definition/country.htmlhttp://www.businessdictionary.com/definition/entity.htmlhttp://www.businessdictionary.com/definition/multinational-corporation-MNC.htmlhttp://www.businessdictionary.com/definition/international-business-company-IBC.htmlhttp://www.businessdictionary.com/definition/business.htmlhttp://www.businessdictionary.com/definition/business.htmlhttp://www.businessdictionary.com/definition/international-business-company-IBC.htmlhttp://www.businessdictionary.com/definition/multinational-corporation-MNC.htmlhttp://www.businessdictionary.com/definition/entity.htmlhttp://www.businessdictionary.com/definition/country.htmlhttp://www.businessdictionary.com/definition/individual.htmlhttp://www.businessdictionary.com/definition/goods-and-services.htmlhttp://www.businessdictionary.com/definition/exchange.html


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Business environment


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Components and Significance of Business EnvironmentA business environment comprises a number of environmental factors

which have to be considered while making business policy.

Any change in those factors of the environment is bound to lead to

corresponding changes in the business policy of the organization.

Internal factors of business

The internal environment consists of large number of factors which

contribute to success or failure of an organization. These comprises of

strength and weakness of the organization.

These important factors are

Organizational resources Research and development / technological capabilities Financial capability Marketing capability Operational capability

External factors affecting business

The environment includes the factors outside the firm which can lead

to opportunities or threat to the firm


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Factors that affect international business


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Cultural environmentHumans essentially create their own cultural and social environment.

Customs, practices and traditions for survival and development are

passed down from one generation to the next. In this way, the members

of a particular society become conditioned to accept certain "truths"

about life around them. The increasingly competitive international

business environment calls upon exporters to tailor or adapt their

business approach to the culture and traditions of specific foreign

markets. The inability or unwillingness to do so could become a serious

obstacle to success.

The task of adjusting to a new cultural environment is probably one of

the biggest challenges of export marketing. Export marketing attempts

are frequently unsuccessful because the marketer - either consciously or

unconsciously - makes decisions or evaluations from a frame of

reference that is acceptable to his/her own culture but unacceptable in a

foreign environment. Therefore, business practices which are successful

in one group of countries may be entirely inappropriate in another group

of countries. For example, the Marlboro Company took its famous lonecowboy advertisement to Hong Kong in the early 1960's.However, the

image of the cowboy riding off in the distance by himself led the

Chinese to wonder what he had done wrong.

Cultural factors and its impact on business

Communicable knowledge, learned behavior passed on fromgeneration to generation is called as Culture.

Culture enables people to live together in a society within a givengeographic environment, at a given state of technical

development and at a particular moment in time


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SOCIAL ENVIRONMENT &ITS IMPACT ON internationalbusiness

Sentiments and emotions attached to custom affect business.

People in different cultures form definite attitudes towardswhat is desirable and what is undesirable.

Even the eating habit of people and time on which the foodhas to be taken is a part of custom/caste.


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Social Environment and influence oninternational business structure

Industrialization and urbanization has caused the change in thetaste of the people causing fast disappearance of cottage

industries.

The break ups in joint family the joint family business is also fastdisappearing.

With the emergence of nuclear family, the saving andinvestment has also increased facilitating the growth in companyform of business.

SOCIAL ENVIRONMENT AND ITS IMPACT ON PURCHASING AND

CONSUMPTION


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Economic environment and businessThe purpose, or reason, for developing an economic

analysis of a region or specific country, is directlyrelated to the ability to subsequently make

managements decisions about whether to do, or not

do certain business things in that country or with

that country.

What is economics?Why is the govt.?What are basic economic problems?What are the solutions to those problems?Who will solve these problems?Answers to these questions will automatically give

the relationship between economic and environment.


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Economic factors its components & business


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The economic factors which make us think

which affect international business:

Income distribution & flexible incomeProductivity: Unit labor costs and labor compensation

costs compared

Relates to how much it costs in various regions forour competitors to manufacture stuff, or how much it

costs us for labor to have products made.

We are labor intensive or capital intensive.Major international debtors and debts

relates to the financial burden on govt. to tax us andcompanies (trade surplus, trade deficit, bond debt)

Inflation, interest rates, availability of creditAge distribution

effects lifestyle things such as transportation, foodconsumption, entertainment, living accommodations

Increased risk of violence and terrorism on a national andinternational scale.

Trade surplus and B o P structure.


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Economic environment affecting businessBusiness cannot control the economic forces rather economic

forces affect the business.

Every day there are individuals, businesses and governmentsengaged in economic activity. i.e. buying and selling

Decisions about what to buy and when from individuals,government and businesses drives the whole economy.

Every act of buying and selling - no matter how large or small -contributes to what we call 'the economy'.

The overall effect depends on how many people make decisionson whether to buy or sell.

Economic and business environment inIndiaBecause of large numbers of well educated people we have

become a major exporter of software services.

Despite strong growth the worry is about the continuing publicsector budget deficit aprox. to 10% GDP.


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Political environment

No matter how attractive the economic prospects of a particular country

or region are, doing business there might prove to be financiallydisastrous if the host government(s) inflicts heavy financial penalties on

a company or if unanticipated events in the political arena lead to the

loss of income-generating assets.

The political environment in which the firm operates (or plan to operate)

will have a significant impact on a company's international marketing

activities. The greater the level of involvement in a foreign markets, the

greater the need to monitor the political climate of the countries business

is conducted. Changes in government often result in changes in policy

and attitudes towards foreign business. Bearing in mind that a foreign

company operates in a host country at the discretion of the government

concerned, the government can either encourage foreign activities by

offering attractive opportunities for investment and trade, or discourage

its activities by imposing restrictions such as import quotas, etc. An

exporter that is continuously aware of shifts in government attitude, will

be able to adapt export marketing strategies accordingly.

Nearly all governments today play active roles in their countries'

economies. Although evident to a greater or lesser extent in most

countries, government ownership of economic activities is still prevalent

in the former centrally planned economies, as well as in certain

developing countries which lack a sufficiently well developed private

sector to support a free market system.


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Political Stability, Sovereignty &

Business

There can be various forms of Govt. Rule by one (monarchy) Rule by few (aristocracy) Rule by many (democracy) Today the world seemed to have agreed that democracy is

the best solution.

The Government policies is affecting business in various ways. The

Government policy creating economic risks can be seen affecting:

Policy on Exchange controlsStem from shortages of foreign exchange held by a country.

Local-content lawsCountries often require a portion of any product sold within the

country to have local content.

Import restrictionsSelective restrictions on the import of raw materials to force

foreign industry to purchase more supplies within the host country

and thereby create markets for local industry.

Tax controlsA political risk when used as a means of controlling foreign

investments.


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Approach for better relationshipRelations between governments and MNCs are generally

positive if the investment:

Improves the balance of payments by increasingexports or reducing imports through import

substitution

Uses locally produced resources Transfers capital, technology, and/or skills Create jobs Make tax contributions


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If a company is considered vital to achieving national economicgoals, the host country often provides an umbrella of protection not

extended to other


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The legal environment

The legal environment is derived partly from the political climate in a

country and has three distinct dimensions to it:

The domestic laws of your home country The domestic laws of each of your foreign markets International law in general

Legal systems vary from country to country. You are likely to find that

the legal systems in operation in the buyers' country are in many respects

different from that of South Africa.

Domestic laws govern marketing within a country, e.g. the physical

attributes of a product will be influenced by laws (designed to protect

consumers) relating to the purity, safety or performance of the product.

Domestic laws might also constrain marketers in the areas of product

packaging, marking and labelling, and contracts with agents. Most

countries also have certain laws regulating advertising, e.g. Britain does

not permit any cigarette or liquor advertising on TV

Different legal systems

The legal systems of most of the non-socialist countries can be grouped

into common law and code law. Common law is generally based on

precedents or past practices while a code, which is a comprehensive set

of volumes having statutory force and covering virtually the whole

spectrum of the country's law, is established by arbitrary methods - e.g. a

speed limit of 80 kph or a three-day period for cancelling a contract.

South Africa's commercial legal system has been influenced by English

law. English courts create and follow precedents just as South African

courts do. Furthermore, English cases are regularly cited as authority in

our courts in situations where there is no domestic decision on the point

and the particular case concerns an area of our law (such as insurance or


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negotiable instruments) which derives from, or was considerably

influenced by, English law.

ContractsCentral to all commercial activities is the contract. The purpose of a

contract is to specify the respective rights and obligations of the parties

to an agreement and outline specific procedures or actions that must take

place. In this way, the possibility of disputes arising between the parties

is reduced. In the context of international business, with its inherent risks

and complexities, contracts assume a vital role. The principal legal

arrangement underlying an export transaction is the export sales

contract. However, when a company obtains materials from a localsupplier, engages the services of a freight forwarder or insurer, or

concludes agreements with carriers, e.g. shipping lines, airlines and

domestic road haulers, it is also entering contracts.


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.

When an international commercial dispute occurs, the problem must be

settled in one of the countries involved according to the laws and

regulations of that country unless the contract states otherwise. If thedispute cannot be settled amongst the parties involved, resolution can

possibly be obtained through arbitration (i.e. through negotiations

facilitated by a independent third party). Where the process of arbitration

fails, for one reason or another, the option of litigation, i.e. going to

court, might be considered. Disputes that go to court usually involve

either large monetary transactions or the ownership of patents, copyright

(see chapter 4) or physical property. Court actions can take from a few

months to several years and can involve large expenditure in legal feesand lost revenues.

Whose system of law (i.e. South African law or that of the importing

country) is applicable at a particular stage of an international business

transaction depends, inter alia, on the nature and terms of the agreement.


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Technology environment

Technology can be defined as the method or technique for converting

inputs to outputs in accomplishing a specific task. Thus, the terms

'method' and 'technique' refer not only to the knowledge but also to

the skills and the means for accomplishing a task. Technological

innovation, then, refers to the increase in knowledge, the improvement

in skills, or the discovery of a new or improved means that extends

people's ability to achieve a given task.

Technology can be classified in several ways. For example, blueprints,

machinery, equipment and other capital goods are sometimes referred to

as hard technology while soft technology includes management know-how, finance, marketing and administrative techniques. When a

relatively primitive technology is used in the production process, the

technology is usually referred to as labor-intensive. A highly advanced

technology, on the other hand, is generally termed capital-intensive.

Changes in the technological environment have had some of the most

dramatic effects on business. A company may be thoroughly committed

to a particular type of technology, and may have made majorinvestments in equipment and training only to see a new, more

innovative and cost-effective technology emerge.

Indeed, the managing director of multinational organization

manufacturing heavy machinery once said that the hardest part of his job

had nothing to do with unions, pay or products, but with whether or not

to spend money on the latest technologically improved equipment.

Computer technology has had an enormous impact on education andhealth care, to name but two areas affected. The advancements in

medical technology, for example, have contributed to longevity in many

societies. In addition, the introduction of robots in many factories has

reduced the need for labor, and the use of VCR's and microcomputers


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has become commonplace in many homes and businesses.

Unfortunately, there is a negative side to technological progress. The

introduction of nuclear weapons, for example, has made the destruction

of the human race a frightening possibility. In addition, factories usingmodern technologies have polluted both air and water and contributed to

various environmental and health-related problems.

Technology is a critical factor in economic development. Because of the

advances of international communication, the increasing economic

interdependence of nations, and the serious scarcity of vital natural

resources, the transfer of technology has become an important

preoccupation of both industrialized and developing countries. For manyindustrialized countries, the changes in the technological environment

over the last 30 years have been immense particularly in such areas as

chemicals, drugs, and electronics. It is vital that organizations stay

abreast of these changes - not only because this will allow them to

incorporate new and innovative designs into their products, but also

because it will give them a firmer base from which to anticipate and

counteract competition from other organizations.

When the Gillette Company developed a superior stainless steel razorblade, it feared that such a superior product might mean fewer

replacements and sales. Thus, the company decided not to market it.

Instead, Gillette sold the technology to Wilkinson, a British garden tool

manufacturer, thinking that Wilkinson would use the technology only in

the production of garden tools. When Wilkinson Sword Blades were

introduced and sold quickly, Gillette understood the magnitude of its

mistake.

The transfer of technology is essential for attaining a high level of

industrial capability and competitiveness. Multinational corporations are

playing an increasingly important role in technology transfer because

they invest abroad to expand production, marketing and research

activities. There is also a growing consciousness amongst governments


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of the need to increase technology transfer to the developing countries to

help stabilize their economic and social conditions.

Technology can be transferred from person to person, industry to

industry and government to government, although the government ofany country generally plays the most important role in facilitating or

impeding the transfer process. Contacts amongst students from different

countries are also a means of technology transfer as are journals, books,

technical and professional publications, trade magazines and product

pamphlets. Furthermore, multinational corporations play an important

role in technology transfer by transferring information and technology

from the parent company to subsidiaries in other countries, training

foreign employees, etc.


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ConclusionInternational business environment is an interesting subject to study

as it was clear in this assignment. First of all, bail-out and its

negative effects are creating long-term problems for developed

economies as this system is bringing the chances of corruption in

the system. Secondly, friction is creating problems for the

enterprises as world is going from globalization to regionalization

which can be lethal for world economy. Another factor discussed in

the assignment was the growth strategy and its advantages and

disadvantages to the company. Difference of conduct between

African and Chinese managers provides more opportunities for the

management and is not negative. Furthermore, political instability

can provide more challenges for the operations of a multinational

organization and in the end the spending of R & D by different

government and it advantages were discussed. Although in thisassignment I did not mention my own opinions with separate

headings but there are different views which are my own evaluation

of events in the assignment.

effects of environment on international business

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