IB-

Country
Attractiv
eness

SARAH JANE B. ORILLOSA, DBM

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The  International  business  environment  includes 

various factors like social, political, regulatory, cultural, 
legal  and  technological  factors  that  surround  a 
business entity in various sovereign nations. 
There  are  exogenous  factors  relative  to  the  home 
environment  of  the  organization  in  the  international 
environment.  These  factors  influence  the  decision­
making  process  on  the  use  of  resources  and 
capabilities.  They  also  make  a  nation  either  more  or 
less attractive to an international business firm.   
 Adapting to Changing
3
Needs
Firms  do  not  have  any  control  over  external 
business  environment.  Therefore,  the  success  of  an 
international company depends:
  upon its ability to adopt to the overall environment.
 on  the  ability  to  adjust  and  manage  company’s 
internal  variables  to  leverage  opportunities  of  the 
external environment
 company’s ability to control various threats produced 
by the same environment
A  term  called  ‘country  attractiveness’  is  often 
discussed  in  international  business  fraternity.  It  is 
important to consider attractiveness before we move on 
to discuss environmental factors.
 Country Attractiveness
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 it  is  a  measure  of  a  country’s  attractiveness  to  the 
international investors. 
In  international  business,  investment  in  foreign 
countries  is  the  most  important  aspect  and  hence 
firms  want to determine how suitable a country is in 
terms of its external business environment.  
International  business  firms  judge  the  risks  and 
profitability of doing business in a particular country 
before  investing  and  starting  business  there.  This 
judgment includes studying the environmental factors 
to arrive at a decision.
 Country Attractiveness
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It  is  pretty  clear  that  businesses  prefer  a 
country  that  is  less  costly,  more  profitable,  and 
has  fewer  risks.  Cost  considerations  are  related 
with  investment.  Profitability  is  dependent  on 
resources.  Risks  are  associated  with  the 
environment and hence it is of prime concern.
Risks  may  be  of  various  types.  However,  the 
general consensus is that a country that is more 
stable  in  terms  of  political,  social,  legal,  and 
economic  conditions  is  more  attractive  for 
starting a business.
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There are numerous types of business
environments, however the political, the
cultural, and the economic environment are the
prime ones. Theses factors influence the
decision-making process of an international
business firm. It is important to note that the
types of environments we discuss here are
interlinked; meaning one’s state affected the
others in varying dimensions.
POLITICAL FACTORS
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 affects  the  legal  aspects  and  government  rules 
which a foreign firm has to experience and follow 
while doing business in that nation
 There  are  definite  legal  rules  and  governance 
terms  in  every  country  in  the  world.  A  foreign 
company  that  operates  within  a  particular 
country has to abide by the country’s laws for the 
duration it operates there. 
 POLITICAL ENVIRONMENT CAN
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AFFECT
OTHER ENVIRONMENTAL FACTORS :
 Political decisions regarding economy can
affect economical environment
 Political decisions may affect the socio-
cultural environment of a nation
 Politicians may affect the rate of
emergence of new technologies.
 Politicians can exert influence in the
acceptance of emerging technologies.
 4 MAJOR EFFECTS OF POLITICAL
ENVIRONMENT ON BUSINESS
9 ORGANIZATIONS
 1. IMPACT ON ECONOMY
The political conditions of a nation have a
bearing on its economy.
 2. CHANGES IN REGULATION
Governments often alter their decisions
related to business control.
 4 MAJOR EFFECTS OF POLITICAL
ENVIRONMENT ON BUSINESS
10 ORGANIZATIONS
 3. POLITICAL STABILITY
effects business operations of international
companies. An aggressive takeover overthrowing
the government could lead to a disordered
environment, disrupting business operations.
 4. MITIGATION OF RISK
there are political risk insurance policies that can
mitigate risk. Companies with international
operations leverage such insurance to reduced their
risk exposure.
economic FACTORS
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 exert a huge impact on international business
firms. The economic environment includes
the factors that the influence a country’s
attractiveness for international business
firms.
 Economic Factors are the factors that affect the
economy and includes interest rates, tax rates, law,
policies, wages, and governmental activities. These
factors are not in direct relation with business but it
influences the investment value in the future.
economic FACTORS
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 Business firms seek predictable, risk-free,
and stable mechanisms. Monetary systems
that acknowledge the relative dependence of
countries and their economies are good for a
firm. If an economy foster growth, stability, and
fairness for prosperity, it has a positive effect on
the growth of companies.
 Inflation contributes hugely to a country’s
attractiveness. High rate of inflation increases
the cost of borrowing and makes the revenue
contract in domestic currency. It exposes the
international firms to foreign-exchange risks.
economic FACTORS
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 Absolute  purchasing  power  parity  is  also  an 
important  consideration.  The  ratio  of  exchange  rate 
between  two  particular  countries  is  identical  to  the 
ratio  of  the  price  levels.  The  law  of  one  price  states 
that  the  real  price  of  a  product  is  same  across  all 
nations.
 Relative  purchasing  power  parity  (PPP)  is  valuable 
for foreign firms. It ask how much money is needed 
to buy the same goods and services in two particular 
countries.  PPP  rates  prompt  international 
comparisons of income
conomic Factors Affecting Bu
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Interest Rate Demand / Supply

Exchange Rate Wages
Tax Rate Law and Policies
Inflation Government
Labor Activity
Recession
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Interest
1 Exchange
2 Tax Rate
3
Rate
Interest  Rate is  major  factor 
Raterate  comes  The  tax  rate  is  a  crucial 
Exchange 
affects  the  liquidity  of  cash 
into  the  picture  in  case  part of the economy. Tax 
in  the  economy.  With  an 
of  export  and  import.  It  rate  affects  the  price  of 
increase  in  investment  cash 
affects  international  goods  and  its  sales 
flow in country decrease and 
payment  and  price  of  which  affects  the 
result  in  a  decrease  in 
goods  and  that  affects  economy.
liquidity  of  country  whereas 
the economy.
with  a  decrease  in 
investment  cash  flow  in 
country  increase  and  result 
in an increase in liquidity of 
country.
 17 4 5 6

Inflation Labor Demand/

With the increase in  Labour and it is cost or  Supply
Demand or supply of goods 
or services affects the 
demand price of goods or  wage is always an 
economy as with the 
important economic 
service increase which  increase in demand price of 
factor that affects the 
result in inflation and  goods or service increase 
economy. Many 
which result in inflation and 
with inflation money 
countries have started  with inflation money supply 
supply in market  outsourcing of labor  in economy increases and 
increases. from other countries.  with increases in the supply 
The company starts its  of goods or services price of 
plant or production  same decreases. Demand 
where labor is cheap. and supply are depended on 
each other.
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Wage
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Law and
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Government
With change or Activity
Policies
s
Wages paid to labour
modification in law
or employee is a direct
economy of country Government activity
cost to the company
changes, for example, also affects the
which is added to cost
its government make a economy. If the
of goods or service
law that liquor should government is
through which it
be ban in the country it promoting any industry
affects the economy
will affect companies like insurance or
and another way
dealing with it, their medical or technology
through which wages
employees and it will promote that
affect the economy is
shopkeepers which at sector that boosts its
with an increase in
broad level affect the economy which will
wages consuming the
economy. Similarly, any overall support the
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Recessio
nRecession affects the purchasing
power of consumer which force
companies to drop the price of their
goods or services.
CULTURAL FACTORS
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 cultural environments include educational,

religious, family, and social systems within the
marketing system. Knowledge of foreign
culture is important for international firms.
marketers who ignore cultural differences risk
failure.
CULTURAL FACTORS
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 LANGUAGE
There are nearly 3000 languages in the world.
Language differences are important designing
advertising campaigns and product labels. If a
country has several languages, it may be
problematic
CULTURAL FACTORS
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 COLORS
It is important to know how people associates
with colors. every color has a meaning and
personality. Thus, understanding color psychology
can help give your business an edge over the
competition. specific colors tend to stir emotions
in customers results to creating brand relevance
and motivating purchases.
CULTURAL FACTORS
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 CUSTOMS AND TABOOS

It is important for marketers to know the
customs and taboos to learn what is acceptable
and what is not for the marketing programs.
 VALUES
Values stem from moral or religious beliefs and
are acquired through experience.
CULTURAL FACTORS
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 AESTHETICS
There are difference s in aesthetics in different
cultures. Aesthetics is more than just the
appreciation of beauty as it captivates attention
and affects customer behavior.
 TIME
Punctuality and deadlines are routine business
practices in the U.S. However, Middle East and
Latin American people are far less bound by time
constraints.
CULTURAL FACTORS
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 RELIGIOUS BELIEFS
Religion can affect aproduct’s labelling,
designs, and items purchased. It also affects the
consumers values.
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CULTURAL DIFFERENCES

 Ireland’s evening meal is called tea, not dinner.

 If you nod in bulgaria, it means “no” and moving

the head from one side to the other means “yes”

 Pepsodent toothpaste did not sell well in

Southeast Asia, as it promised white teeth. Black
or yellow teeth are symbols of prestige there.
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