INTERNATIONAL BUSINESS ENVIRONMENT

Meaning: The environment of international business is regarded as the sum total of all the external forces working upon the firm as it goes about its affairs in foreign and domestic markets. International business environment is defined as the environment in different countries; this includes the social, political, economic, regulatory, tax, cultural, legal, and technological environment. Definition: According to James & Millard International Business Environment imposes several constrains on an international enterprise and has considerable impact an influence and the scope and direction of its activities. Importance of the International Business Environment: 1. Dependence of industries on import and exports: The international environment is particularly important for industries directly depending on imports or exports and import competing industries. 2. Spread Effects of the International Development: It has been observed that major international developments have their spread effects on domestic business. 3. Increasing complexities of Business Environment: Business Environment in the present of economic liberalization, privatization and globalization is becoming increasingly complex, unstable and unpredictable. 4. To Anticipate and Withstand Changes of the Business World: An anile organization not only comprehends and makes strategic adjustments in business planning and operation but is also able to project the forthcoming changes from the current scenario and take appropriate defensive or invocative measures. Determinants of the International Business Environment: 1. 2. 3. 4. 5. The state of the world economy and distribution of world output International economic cooperation Role of multilateral economic institution International economic laws. Treaties, agreements, norms, practices and codes Degree of market fit with company policies, goals, and resources

Framework of International Business Environment: FRAMEWORK OF INTERNATIONAL BUSINESS ENVIRONMENT International Economic Environment International Legal & Regulatory Environment International Social Environment International Political Environment International Cultural Environment International Technological Environment

International Economic Environment: The economic environment can be very different from one nation to another. Countries are often divided into three main categories: The more developed or industrialized, the less developed or third world, and the newly industrializing or emerging economies. The distinctions are usually made on the basis of gross domestic product per capita (GDP/Capita). Better education, infrastructure, and technology, health care, and so on are also often associated with higher levels of economic development. International Political Environment: The political environment refers to the type of government, the government relationship with business, and the political risk in a country. Doing business internationally thus implies dealing with different types of governments, relationships, and levels of risk. International Cultural Environment: National culture is described as the body of general beliefs and values that are shared by a nation. Beliefs and Values are generally seen as formed by factors such as history, language, religion, geographic location, government, and education thus firs begin a cultural analysis by seeking to understand there factors. International Legal & Regulatory Environment:

The global legal environment refers to the legal environment in international business. The legal environment regulates the operations of firms in international markets in different countries need to know the laws of the domestic country as well as all the host countries they operate in. International Social Environment: When a firm operates in an international business environment, an individual is bound by the society in which people live; it needs to understand the importance of society. In most western societies, these classes are classified as upper, middle, and lower. International Technological Environment: Technology is a major driving force both in international marketing and in the move towards a more global marketplace. the ability to gather data on markets, management control capabilities and the practicalities of carrying out the business function internationally have been revolutionized in recent years with the advances in the electronic communications.

INTERNATIONAL POLITICAL ENVIRONMENT

Meaning: A Political environment is which the firm operates (or plans to operate) will have significant impact on a companys international marketing activities. Meaning Political System: A political system is a complete set of institutions political organization, political parties the relationship between those institutions and the political norms & rules that governed their functions A political system consists of the members of social organization who are in power. Classification of Political System:

Classifications of political system

Political system as the Basis

Economic system on the Basis

Parliamentary Governments

Absolutist system

Communist Theory

Socialism Theroy

Capitalism Theory

Two - party system

Multiparty system

Single - party

Dominated One - Party

1. Political system as the Basis: One way to classify governments is to consider them as: a. Parliamentary Governments: Parliamentary governments consult with citizens from time to time for the purpose of learning about opinions and preferences. b. Absolutist System: At the order end of the spectrum are absolutist governments, which include monarchies and dictatorships.

Another way to classify governments is by number of political parties. This classification results in four types of governments: Two Party system: In a two party system, there are typically two strong parties that take turns controlling the government, although other parties are allowed. ii. Multiparty System: Ina multiparty system, there are several political parties, none of which is strong enough to gain control of the government. iii. Single Party: In a single party system, there may be several parties, but one party is so dominant that there is little opportunity for other to elect representatives to govern the country. iv. Dominated One Party: In a dominated one party system, the dominant party does not allow any opposition, resulting in no alternative for the people. 2. Economic system as the Basis: Economic system provides another basis for classification of governments. These systems serve to explain whether business is privately owned or government owned, or whether there is a combination of private and government ownership. a. Communist Theory: Communist theory holds that all resources hold be owned and shared by all the people (i.e., not by profit seeking enterprises) for the benefit of the society. b. Socialism Theory: The degree of government control that occurs under socialism is somewhat less then under communism. c. Capitalism Theory: At the opposite end of the continuum from communism is capitalism. The philosophy of capitalism provides for a free market system that allows business competition and freedom of choice for both consumers and companies. i. Key aspects in Political System: The economic and legal system of country is shall by its political system. Political system means the system of government in a nature it can be assessed according to key aspect. 1. The degree to which they emphasize collectivism as opposed to individualism 2. The degree to which they are democratic or totalitarian. These key aspect / dimensions are interrelated. System that emphasizes a mix of collectivism and individualism tend to be democratic. 1. Individualism ad Collectivism: Individualism pertains to societies in which the ties between individuals are loose everyone is expected to look after himself or herself and his or her immediate family. a. Collectivism: It refers to a political system that stresses that primacy of collective goals over individual goals.

b. Individualism: Individualism is the opposite of collectivism. In a political sense, individualism refers to a philosophy that an individual should have freedom in his or her economic and political pursuits. 2. Democracy and Totalitarianism: Democracy and totalitarianism are at different ends of a political dimension. Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives. a. Democracy: The principles of democracy derive from the ancient Greeks, who believed that all citizens are politically and legally equal, and hence were entitled to freedom of thought, opinion, belief, speech and association. b. Totalitarianism: Totalitarianism in contrast, is an ideology whereby individual freedom is completely suppressed in favour of some definition of collective well being. A government operating according to totalitarian ideology has a leader or small coalition with absolute power over members of society.

INTERNATIONAL ECONOMIC ENVIRONMENT

Meaning: The totality of economic factors such as employment, income, inflation, interest rate, productivity, wealth, business cycle, unemployment that affect the consumer purchasing power and spending pattern. Understanding the economic environments of foreign countries and markets can help managers predict how trends and events in that environment might affect their companys future performance Preliminary Economic Indicators: Whenever a firm moves abroad for international business, it takes into account some preliminary economic indicators of the host country at a particular point of time as well as over a particular period. 1. Size of demand: the size of demand depends inter alia upon the level of income and its distribution, the propensity to consume, and rate of inflation. a. Level of income and its distribution b. Inflation c. Consumption behavior 2. Cost of Production: The cost of production depends upon the availability of human and physical resources a. Availability of human and physical resources b. Network of infrastructure c. Fiscal, monetary, and industrial policies 3. Smoothly Repatriation: Smooth repatriation of income and project depends upon the strength of the external sector. Multinational firms are greatly interested in repatriating profit to their parent unit. Types of Economic systems: Three types of economic system can be identified planned economy, market economy, and mixed economy. 1. Planned Economy: also called socialism, a CPE is defined as an economy where decisions regarding production and distribution of goods are taken by a central authority, depending upon the fulfillment of a particular economic, social, and political objective. Planned (socialist, communist) Economies Features i. Social ownership of means of production ii. Centralized planning planning authority prepares plan for resources allocations.

Social welfare rather than profit motive. In communism consumption is also controlled by government. 2. Market based Economy: at the other extreme. In the market based economy system, the decision to produce and distribute goods is taken by individual firms based on the forces of demand and supply. Market based (free market, capitalist) Economy features i. Private enterprises, material means of production are owned by private sector, freedom of enterprise, accumulation of wealth, consumers sovereignty etc, ii. Market mechanism or price mechanism to allocate resources. iii. Profit motive 3. Mixed Economic system: Between the two extremes, there is the mixed economic system. There is no country that represents any of the two systems in its purest form mixed economy represents a mixture of state control on one hand and the economic freedom of entrepreneurs and consumers on the other is the natural outcome. Mixed Economy Features i. Co-existence of public and private sector. Joint sector also ii. Planning and price mechanism lead to resource allocation iii. Profit motive and social welfare objective.

iii.