Effects of environment on international business

Submitted by Name- Sumit Kumar banduni Sapid-500011691 Rollno-49

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, cooperation benevolent guidance, keen interest and critical appreciation. Sumit Kumar Banduni BBA (Oil and Gas Marketing), UPES Dehradun

International business
1. The exchange of goods 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 (both production 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 an era 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.

Business environment

Components and Significance of Business Environment A 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

Factors that affect international business

Cultural environment
Humans 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 lone cowboy 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 from generation to generation is called as Culture. Culture enables people to live together in a society within a given geographic environment, at a given state of technical development and at a particular moment in time

Examples of Cultural Factors across the world The head is considered sacred in Thailand Avoid using triangular shapes in Hong Kong, Korea and Taiwan. It is considered a negative shape. The number 7 is considered bad luck in Kenya, good luck in Czech Republic and has magical association in Benin, Africa Think about windows 7 The number 10 is bad luck in Korea Red represents witchcraft and death in many African countries The number 4 is means Death in Japan

SOCIAL ENVIRONMENT &ITS IMPACT ON international business

Sentiments and emotions attached to custom affect business. People in different cultures form definite attitudes towards what is desirable and what is undesirable. Even the eating habit of people and time on which the food has to be taken is a part of custom/caste.

Social Environment and influence on international business structure

Industrialization and urbanization has caused the change in the taste of the people causing fast disappearance of cottage industries. The break ups in joint family the joint family business is also fast disappearing. With the emergence of nuclear family, the saving and investment has also increased facilitating the growth in company form of business.

SOCIAL ENVIRONMENT AND ITS IMPACT ON PURCHASING AND CONSUMPTION

Economic environment and business The purpose, or reason, for developing an economic analysis of a region or specific country, is directly related 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.

Economic factors its components & business

The economic factors which make us think which affect international business:
Income distribution & flexible income Productivity: Unit labor costs and labor compensation costs compared Relates to how much it costs in various regions for our 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 and companies (trade surplus, trade deficit, bond debt) Inflation, interest rates, availability of credit Age distribution effects lifestyle things such as transportation, food consumption, entertainment, living accommodations Increased risk of violence and terrorism on a national and international scale. Trade surplus and B o P structure.

Economic environment affecting business

Business cannot control the economic forces rather economic forces affect the business. Every day there are individuals, businesses and governments engaged 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 decisions on whether to buy or sell.

Economic and business environment in India

Because 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 public sector budget deficit aprox. to 10% GDP.

Political environment
No matter how attractive the economic prospects of a particular country or region are, doing business there might prove to be financially disastrous 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.

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 controls Stem from shortages of foreign exchange held by a country. Local-content laws Countries often require a portion of any product sold within the country to have local content. Import restrictions Selective 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 controls A political risk when used as a means of controlling foreign investments.

 Price controls Essential product that command public interest. Labor unions Have strong government support that they use effectively in obtaining special concessions from business.

Politically Sensitive Products and Issues

Products that have or are perceived to have an effect on The environment, exchange rates, national and economic security, and the welfare of people and that are publicly visible or subject to public debate, are more likely to be politically sensitive. Health is often the subject of public debate, and products that affect or are affected by health issues can be sensitive to political concern.

Approach for better relationship

Relations between governments and MNCs are generally positive if the investment: Improves the balance of payments by increasing exports or reducing imports through import substitution Uses locally produced resources Transfers capital, technology, and/or skills Create jobs Make tax contributions

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

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

negotiable instruments) which derives from, or was considerably influenced by, English law.

Contracts
Central 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 local supplier, 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.

. 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 the dispute 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 fees and 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.

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 knowhow, 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 major investments 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 and health 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

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 using modern 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 many industrialized 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 razor blade, 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

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 of any 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.

Conclusion
International 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 this assignment 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.