A Business Growth and Strategy Project

On

INFLUENTIAL FACTORS OF
INTERNATIONAL
BUSINESS AND
INTERNATIONAL
BUSINESS ENVIRONMENT

By:
Ankit D Jethani
6937
Business Environment consist of every factors influential to the business operations. These
factors are classified into two broad categories. These are:

a) External or Uncontrollable factors of Business environment.

b) Internal or Controllable factors of Business environment.

External Factors: The factors those are not controllable at any cost but have to adopt for
success of business are external or uncontrollable factors. For example Demography, Political
forces, Legal practices, Cultural influences, Technological advancement, competitiveness etc.

Internal Factors: The factors those are related to the internal operations of a business and can
be controlled by proper management are controllable or internal factors of business
environment. For instance Land, Labor, Capital, Business Location etc.
 EXTERNAL ENVIRONMENTAL FACTORS

1. SOCIAL CONDITIONS

A Sociological perspective of environment includes the Demographic Status and Trends,

the Work Ethic and Personal Values and General Cultural Values. Each of these
influences how management accomplishes its jobs. Each country has a unique Social
Environment and as business becomes international, management must understand
these unique environments.

a. Demography
Demography means the total number of population of any particular territory.
They have a greater influence of any business operation. For example in a mass
populated area demand of consumer products will be comparatively higher than
any lesser populated area. So, we can say that demography has a direct impact
on business environment. Because demand direct towards maximization of sales.
The higher the value of sales the more would be the profits. The more profits
impacts on success business operations.

b. Cultural Forces
Culture is that what we are that means our living, eating, food habit, way of
dressing and way of speaking everything accumulated to our culture. For
example wearing lungi, eating panta with hilsha fish on Bengali New Year is part
of Bangladeshi culture, every Bangladeshi respect or practices this culture. It is
usual tasks for Bangladeshi inhabitants. But it is not acceptable in western or
European culture. Wearing shorts eating fast food, having wine party are their
culture. But it is not acceptable in Bangladeshi culture. As a result demand of
shorts and wine is completely higher in the western society than that of in
Bangladeshi society.
 c. Work Ethics and Personal Value
The importance placed upon work by an individual is known as work ethic.
Business organizations counted upon the desire to work in its employees, a work
ethic expressed in dedication and company loyalty. However work ethic has
changed especially in younger workers and it is obvious that the attitudes of the
workers will impact upon the organization as it recruits, trains, rewards, and
retains employees.

To help analyze the impact of Social Conditions on Business Environment let us take the
following example.
The report in Business & Population Monitor from chartered accounting and business advisory
firm PKF, in conjunction with Access Economics examines the impact of demographic changes
on the Australian business landscape, detailing the anticipated winners and losers across
industry types and geographical regions.

The Beneficiaries of ‘Grey Gold’

The report highlights the prognosis that Australia’s working-age population is expected to
nosedive in the next five to 10 years, while at the same time, the ratio of over 65s to the 15–64
age group will almost double over the next three decades.

PKF’s Business & Population Monitor identified a number of key areas of opportunity for

Australian businesses. While annual spending fell once a worker retired, certain types of
retailing benefited, such as health insurance, gambling, books, home improvement and
electronics as well as communications and travel. However, spending on clothing and footwear,
cars and entertainment would reduce.

The report cited that investment in retirement villages and aged care accommodation, in
particular, would continue to grow, with construction of aged care facilities topping $1.4 billion
in 2007, up 38 per cent on the previous year, with the strongest activity in Tasmania and South
Australia.

Businesses involved with health care are likely also to be winners from an ageing population,
with older Australians expected to line the pockets of the health industry. New technologies
and medical procedures provide clear areas of opportunity for businesses operating in these
sectors. Significant investments in health care technology are required to meet the demands of
the aged, who wish to maintain quality of life into their senior years and are generally prepared
to pay to get it.
The Impact of the Mini ‘Baby Boom’ and Growing Migration

It’s not only the ageing population that will cause a seismic shift in Australia’s demographics.
The large intake of skilled migrants from overseas and a mini ‘baby boom’ have helped drive
population growth, which in turn has pushed the Australian economy along. This, of course, has
already provided businesses with enormous opportunities.

According to PKF’s Business & Population Monitor, population growth in the ‘sun belt’ states of
the Northern Territory, Western Australia and Queensland is running ahead of the five-year
average, as their economies ride the crest of a resources and investment boom, with no signs of
the growth slowing.

Moreover, migrants – the dominant driver of the recent uptick in the population increase –
come with a greater need to buy up than do existing residents. New migrants bring relatively
few physical possessions with them, and need to build their environment anew. As a result,
new migrants are also a particular benefit to the accommodation sector.

The Call to Action for Businesses

 The first challenge for businesses is recognizing that these opportunities exist. The
second is to then do something positive about it.

 The advice to businesses is to be aware of the impact of the ageing workforce changing
composition, particularly the mature aged skilled worker leaving the workforce and
taking valuable skills and experience with them. Also, as governments struggle under
the financial burden of spending on additional expenditure, be prepared for increases in
tax rates to bolster government revenue.

 Those firms that get ahead of coming trends are most likely to profit. The ones that fail
to recognize and adapt to the impending demographic shifts will be left behind.
2. POLITICAL INFLUENCES

Political environment has a direct impact on any county’s business environment. Some
political environments result in a comparatively better business environment and vice
versa. For instance Instable political environment in Bangladesh is a major obstacle for
Bangladeshi operations.

On the other hand before two decades Bangladesh, Vietnam and Malaysia were same
ranking countries from economic aspects. But today Malaysia and Vietnam have
advanced a lot themselves throw their proper political decisions, skilled leadership,
finally stable political situation and responsible leadership make them emerging
economical power in the southeast Asia as well as around the globe.

If we look closer at Home, Political Instability which followed the Parliamentary

Elections of 1996 with no party having a clear majority had its impact on the industrial
climate in 1997.

Form the above discussion it is quite clear that sound political environment has a great
deal of positive on business operation and vice versa. Government policy of a country
depends upon the political culture of a country. It can be different types based on the
form of government. Such as, policy in a communist country will not be match with the
policy of a democratic or monarchy form of government.

Not only will this government policy of a stable politics be better than an unstable
political culture. In a stable political state government can take any business friendly
decision to strengthen local business with the help of opposition party. But in unstable
politics government can do better for attracting FDI but if opposition does not play its
role from a constructive point of view or provide any distractive political course of
action like, Trick, Riot, Not to attend in the parliament or changes all policies decided by
the previous government like Bangladesh. These types of political culture hamper
government policy as well as fell a bad impact on the business environment of that
particular country.
Law & order situation should be controlled by the government. But if any government
failed to control this important factor of batter business outcomes than the business
environment of that country hamper & businessmen feel insecure than no foreign
investor can try to come such as deadly environment. By this way businesses as well as
total economy of that country fall down. Such as China has a control law & order
situation & any investor have a positive thinking to invest in china which is not ensure in
Bangladesh or some other country’s government.

Local government sign FTA with any other country. FTA opens a new market for the
native investors / businessmen but if any government’s business policy can’t be so
strong then no country will sign FTA with that country.
To sign a FTA, the government of a country plays a vital role through making friendly
relationship with international community. Thus signing FTA government can enlarge its
business scope as well as control inflation in the native economy. For example if we
compare Sri Lanka with Bangladesh we can see that Sri Lanka has FTA with India and
Pakistan & they are trying to sign these types of agreement with some other country.
This enlarged the scope of Sri Lankan businessmen to operate their business in more
countries. Such facilities cannot be enjoyed by any Bangladeshi businessmen.

An example of indicating impact of Political Influence is how, after destroying former

Soviet Union we are directly observing the US interference in the political situation of
every country around the world. They impose different economics barriers / economics
blockades even global sanction of different countries those who are not their followers
or from which country they being unable to take any undue advantage. On the other
hand they facilitate various countries from different economic and political aspects
those who are their followers or from whom they are capable to take undue
advantages.
These types of US foreign policies hamper the normal flow of international business.
This is not legal practice but an unavoidable impact of world politics on International
business.
3. Legal/Regulatory Practices

Laws are the primary way in which Business is directly affected by the legal system of a
country. Legal practices of any country have a direct impact on the business operation
of that country. For example, if there are any bindings on the international business
transaction from the legal authority of any country then no company can break down
that rules.

For example we can take the case of License Raj

License Raj, which refers to the elaborate licenses, regulations and the

accompanying red tape that were required to set up and run business in India between
1947 and 1990. Up to 80 government agencies had to be satisfied before private
companies could produce something and, if granted, the government would regulate
production. The License Raj was a result of India's decision to have a planned economy,
where all aspects of the economy are controlled by the state and licenses were given to
a select few. License Raj established the "irresponsible, self-perpetuating bureaucracy
that still exists throughout much of the country" and corruption flourished under this
system.

India had started out in the 1950s with:

a. High growth rates.
b. Openness to trade and investment.
c. A promotional state.
d. Social expenditure awareness.
e. Macro stability
But we ended the 1980s with:
a. Low growth rates.
b. Closure to Trade and Investment.
c. A license-obsessed, restrictive state.
d. Inability to sustain social expenditures.
e. Macro instability, indeed crisis.
 The architect of the system of License Raj was Jawaharlal Nehru, India's first Prime
Minister. Inspired by the economy in the Soviet Union, he implemented mixed economy
in India. A mixed economy is one in which capitalism is followed with government
control. Private players could manufacture goods only with official licenses. The quantity
of goods they were allowed to produce was determined by the license regime, not by
free-market demand.

Thus we can clearly see how Legal and Regulatory Practices impact the Economy and
Business of a Country.

4. Economic Conditions
In the functioning of a Business Enterprise we can see that an organization makes use of
resources (input factors) to produce goods and service (output). All this takes place
within the general economic environment, which affects each of these factors.
Few of those factors are:

a. Economy
Aspects of the economy which must be considered by the management as it
makes decisions are:
i. The existing stage of economy and the stage of the Business Cycle.
ii. The Rates of Growth of GNP and Per Capita Income.
iii. Rates of Saving and Investment.
iv. Volume of Exports and Imports.
v. Inflation Rate.
vi. Interest Rate.
vii. Government Budgetary Allocations.
viii. Changes in Distribution of income and Wealth.

b. Customers
The primary facet of External Economics dimension is a firm’s customers. The
goal of the decision making process is to better and more profitably reach the
customers. Customers seek to have the right product at the correct place, at the
right time, in the right form and at the right price. Management seeks to know
the identity of the customer and as much as possible about the customer, who is
called the target market.
 c. Competitiveness
There is no monopoly, duopoly, Tripoli market of any product around the Globe.
That means in every product has mass competitors in the market. To become
success in the competitive market one must have competitiveness.
Competitiveness are some features of the product, the features are –
i. Distinguished quality.
ii. Outstanding performance.
iii. Economy in price.
iv. Better outlook

An example of the impact that Economic Condition have on Business Organizations can
be analyzed with the initiation of the Economic Reforms by the Govt of India in 1991
involving the deregulation and decontrol, Trade Policy Changes and opening up the
economy to foreign investment. These reformist measures have provided many
opportunities as well as posed serious challenges and threats of increasing competition
to Indian Companies.

Also the current scenario can help us to understand the impact of Economics Factors on
Business and Industry in a better way. The subprime crisis led to the failure of various
financial institutions and banks globally. This Global Financial meltdown has a caused a
huge Havoc in various sectors and various markets globally. Currently there is a huge
liquidity crunch worldwide and there is a huge gap between the demand and supply
across the world markets. Many major companies are unable to meet their operational
expenses and are on the verge of Bankruptcy (for eg The Big Three Auto Giants of US,
namely Ford, GM and Chrysler). Countries across the world are trying to stimulate
demand and are following various measures to maintain the required levels of liquidity
in the markets. Various measures are being taken up such as Direct Bailout of Ailing
companies (as we can see by the case of US Government bailing out AIG ) or the
measures taken by the Indian Government by reducing various Interest rates (such as
PLR, Repo, R-Repo, SLR, Cash Reserve Ratio and etc) in order to increase the money
supply in the market and to bridge the gap between consumption and production.
5. Technological Advancement

The final factor in the external environment is that of Technology. It has one of the
most dramatic effects on Business, as changes in technology are often felt quickly by
the company. A Company may be thoroughly committed to a form of technology and
may have invested heavily in machinery and training, only to see a new, more
innovative and cost effective technology emerge. As seen by the unprecedented speed
of growth of the Internet in the last five years of the 20th Century, markets can change
almost overnight, much to the distress of the companies that fail to adjust to changing
technology.

Technology is upgrading itself so quickly than that of our imagination.

Telecommunication system has revolt every system than ever before. Because, only
three decades ago communicating with a European partner with documentation was
one month lengthy process. But today we are doing it within a moment. It has a
greatest impact on business communication. Without rapid communication no
business can run smoothly, profitably in the competitive market.
There are two major aspects regarding the Technological Environment that a Business
should be concerned about:

a. Process Of Innovation

The source of new technology is generally the Research and Development (R&D)
of Private Industry, Government and Academic Research. A Company may
decide to Invest in R&D and then make use of the developed technology or
license it to other companies. Technological Discoveries can be patented initially
for 17 years which gives the inventor the exclusive right to make use of
technology or invention.

If the source of the innovation is in the past or even in current technology levels,
it is said to be an Evolutionary Technological Innovation. If however the
innovation does not build upon past technology and presents a significant shift
from the past it is known as Revolutionary Technological Innovation.
b. Technology Transfer Process

Once a new technology has been discovered, the major issue becomes how to
introduce it into an established technological environment. Most workers resist
new technology until they are shown how this new technology will make them
more productive and make their work life more easier. The more radical and
innovative the technology the higher is the resistance. The relationship between
Innovation and Technology is as follows:

A useful technique to handle this problem is known as incremental innovation

which involves introducing new technology in smaller increments. Each change
in technology is less distant from known technology therefore faces less
resistance. This incremental approach can be seen as follows:
To study the impact of Technological Advancement on business and industry we can take the
example of INTEL Corporation.

Intel is the world’s leader in silicon innovation.

Intel is best known for producing the chips that deliver this increased computing power.
Computer chips are essentially collections of transistors - tiny electronic devices that control
the flow of electricity to create the 1s and 0s that underpin computing.

Transistors are the building blocks of computer chips that Intel has been making for 40 years.
Intel has been working to make these transistors smaller so that more of them could be fitted
onto the same area of silicon, making the chips more powerful. This came at a price. Until
recently, the smaller the transistors, the hotter the chips tended to run. In 2007 Intel developed
a breakthrough in the materials used to construct the transistors. Not only can these transistors
work faster, they can also do this while generating less heat. Intel has started to use this new
material for its latest generation of processors. These are made from transistors only 45
nanometers in size. This means over 2,000 of them could fit on the full stop at the end of this
sentence. A 45 nanometer transistor can switch on and off approximately 300 billion times a
second. A beam of light travels less than a tenth of an inch during the time it takes a 45nm
transistor to switch on and off.

Competitive advantage means a company has or does something better than its rivals. The ‘tick-
tock’ strategy was announced in September 2006 by Intel’s CEO, Paul Otellini. It is a blueprint
for Intel to maintain its technology leadership and competitive advantage. It plans to take
advantage of Intel’s product research, development and manufacturing capacity to deliver
improved products every year. This regular improvement will ensure continued market
leadership. In ‘tick’ years Intel will introduce a new manufacturing process (of which the 45nm
process is the latest). ‘Tock’ years will see the introduction of new designs (architectures) of
CPUs (central processing units).
Intel is competitive because:

• It has a regular cadence (or rhythm) to the development of new products or improvements to
existing ones.

• It integrates teams from R&D and all areas of manufacturing, all working to the same
schedules. Intel is the only company that can combine and optimize manufacturing process
technology, product design, leading-edge capacity, design tools, masks and packaging in-house.

• It sets the highest standards in high-quality clean production. The company invests vast sums
in R&D and manufacturing. This makes it is difficult for rival companies to match Intel.

• It designs quality products. Intel continually develops new technologies that combine
product-led, user-led, and market-led features.

• It is able to leverage its manufacturing capability. This means it can increase production to
bring product to market in large volumes. Increasing volume and getting the product onto the
market as quickly as possible are important elements in creating and maintaining a competitive
advantage.

In order to protect its advantage it is essential that Intel registers intellectual property and
patents in new product development. This registration is vital for Intel. This gives legal
protection against copying by its competitors. The protected time allows it to sell its products
without direct competition. These help to recover the investment costs of designing,
researching and developing the new products.
 INTERNAL ENVIRONMENTAL FACTORS
1. Land
Generally land means soil but in business land includes everything inside the factory like
boundary of land, size of building, machinery installments etc.
2. Labor
Workforce is another vital element of productions and other business operations. Skilled
manpower is not available everywhere but manpower can be skilled up through a marathon
coaching of related tasks. At the same time we will have to think about the wages, working
environment, job security, job satisfactions of the workers.
Job satisfactions can provide best performance as well as creative outputs. Labors can be
satisfied through offering different motives. It may be financial rewards and mental supports.
3. Capital
Capital means financial liquidity of the organization. Fund may be collected from different
sources. Such as –
a) Fully owned capital
b) Through partnership agreement
c) Taking loan from the financial institutions
d) Collecting capital from capital market
e) Joint venture fund collection from foreign market
Collecting fund is not the final tasks for proper business operations. Because proper utilization
of the fund i.e. capital management functions have to be operated efficiently.
4. Business Location
Business location is a major factor for successful operation of any business. Location should be
selected based on the following criterions:
a) Transportation facilities
b) Availability of raw materials
c) Availability of labors
d) Security
Better transporting facilities result in quick communication which is an essential factor for every
business. Business location should be selected after thinking availability raw materials, skilled
labor force and high security.
5. Owners’ Equity
Owners’ equity is that portion of capital where liabilities are not included. Only self owned and
other business offered facilities are included here.
 ADDITIONAL INFLUENTIAL FACTORS IN INTERNATIONAL
BUSINESS ENVIRONMENT

As stated above all factors will be applicable for the International Business Environment. There are many
more factors should be added for International Business Environment. These are as follows:
a) Regional cooperation associations like SAFTA, NAFTA, EU etc.
b) WTO
c) UN Activities
d) Current world order
e) International rules & regulations

Regional Cooperation Association

There are many regional cooperation associations are available around the globe. These associations are
controlling their respective regional business functions. For example SAFTA, NAFTA, EU, ASEAN etc.

SAFTA
SAFTA Stands for South Asian Free Trade Area. It creates a framework for the creation of a free trade
zone covering 1.4 billion people in India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and Maldives.
The seven foreign ministers of the region signed a framework agreement on SAFTA with zero customs
duty on the trade of practically all products in the region by end 2012.

NAFTA
The North American Free Trade Agreement (NAFTA) is a commercial agreement among Canada, the
United States of America, and Mexico which promised free trade and easier flows of capital among the
signatory nations. This commercial business agreement controls their international business a lot.

ASEAN
The Association of Southeast Asian Nations (ASEAN) is a political and economic organization of countries
located in Southeast Asia. ASEAN was formed on August 8, 1967 by the Philippines, Malaysia, Thailand,
Indonesia, and Singapore, as a display of solidarity against communist expansion in Vietnam and
insurgency within their own borders. Following the Bali Summit of 1976, the organization embarked on
a mission of economic cooperation, which floundered in the mid-1980s only to be revived around a 1991
Thai proposal for a regional "free trade area". The countries meet annually.

WTO
The World Trade Organization (WTO) is an international organization that establishes rules for
international trade through consensus among its member states. It also resolves disputes between the
members, which are all signatories to its set of trade agreements.