International Business Environment

Chapter
2
International
Business Environment

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International Business Environment

Any company operating in international markets across its national borders

actually deals with five sets of environments: domestic internal, domestic
external, foreign internal, foreign external and the international business
environment comprising of treaties, agreements and conventions. The dynamics
of the global marketplace are governed by the interplay of all five.

The major difference between domestic and international trade lies in the
different operating environments.

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International Business Environment

Factors governing international trade environment

Economic Factors
The growing economic interdependence among nations, coupled with rapid
industrialisation of business and globalisation of markets have contributed greatly
to blur the lines between international trade and foreign investment, between
domestic and foreign trade policies, and between foreign and local firms and
products. The results have been seen in terms of growing cooperation and
competition. Growing economic interdependence among nations has given
importance to supportive global economic institutions. These institutions in turn
have greatly influenced the economic and trade scenario worldwide.

Cont….
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International Business Environment

Social and Cultural Factors

Dealing with different expectations of people is the crux of cross-cultural
management and to be effective in this area, a company will need to develop a
broader understanding of the socio-cultural landscapes of its different markets. A
company working in an international business environment has to be in constant
touch with the tastes and preferences of its customers and must keep adapting its
products and marketing styles to match the same.
Languages, symbols, colours, signs and timings all vary in various parts of the
world. Care needs to be exercised to ensure their proper usage, which is in
keeping with the place. A firm has to understand the local culture of its market
and translate the same into its products and services, so as to reach out
effectively to its target customers. Many firms have failed in foreign markets, not
because they did not have good products but because they failed to connect with
the local sentiments of the customers. Cont….
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International Business Environment

Legal and Political Factors

Both political and legal systems of a country influence the conduct of business at
home and abroad. Any exporting company operating in different countries must
face different political and legal conditions. For this company to succeed, its
management must carefully study to analyse whether its corporate policies will fit
a different political and legal environment. Political stability is another major
issue. A company has to assess the political risk in any country of its business
operations. The legal framework comprising of various laws and rules is another
dimension of the external environment that influences business. Legal changes
need to be anticipated and their impact studied. This will lend an edge to
business by allowing sufficient time to consider its reactive moves. Even when a
company is considering entry into a new foreign market, it must have its legal
backup ready.
Cont….
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International Business Environment

Technological Factors
Technology is the prime pulling force for the global business. The state of
technological development differs in different countries and accordingly
infrastructure levels are in different stages of readiness. Global competition uses
technology as a distinct advantage to score over each other in areas of efficiency
maximisation, cost reduction, better service to the customers and other
stakeholders, new and better products and service delivery, etc. Working in more
than one country usually means working with different technologies or at least
different levels of technological states; therefore, the biggest challenge is how to
fill this technological divide? A global company's effectiveness to deal with these
challenges will determine its business prospects in the long run. Companies need
to anticipate technological change and develop a mechanism to upgrade to
required levels so as to succeed in a complex and rapidly evolving environment.
Most global companies are forced to work in multi-technological environments.
This is in keeping with the ‘Think Global Act Local ’ scenario. The development
of new technology and its useful applications is a technical pursuit, but its
seamless introduction across national boundaries is a management challenge.
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International Business Environment

GATT (General Agreement on Tariffs and Trade)

The General Agreement on Tariffs and Trade (GATT) was first signed in 1947. It
was designed to provide an international forum that encouraged free trade
between member states by regulating and reducing tariffs on traded goods and by
providing a common mechanism for resolving trade disputes. India was one of the
23 founding members of GATT.
GATT's main goal was to ensure that its member countries' relations in the field of
trade and economic endeavour be conducted with a view to:
 Raising standards of living
 Ensuring full employment
 A large and steadily growing volume of real income and effective demand
 Developing full use of resources of the world
 Expanding production and exchange of goods
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International Business Environment

WTO (World Trade Organisation)

World Trade Organisation (WTO) is the global body dealing with the rules of
trade between nations. At its heart are WTO agreements, negotiated and signed
by bulk of the world's trading nations and ratified in their parliaments. The goal is
to help producers of goods and services, exporters, and importers conduct their
business. (www.wto.org). WTO is a successor to GATT.
WTO's primary objective is to help international trade flow smoothly, freely, fairly
and predictably. It aims to achieve this free trade between nations by:
 Administering trade agreements
 Acting as a forum for trade negotiations
 Settling trade disputes
 Reviewing national trade policies
 Assisting developing countries in trade policy issues, through technical
assistance and training programmes
Cont….
 Cooperating with other international organisations
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International Business Environment

WTO works on the following basic principles that serve as the foundation of the
multilateral trading system it supports.
1. Without discrimination - a country should not discriminate between its
trading partners.
2. Freer - barriers coming down through negotiation.
3. Predictable - foreign companies, investors and governments should be
confident that trade barriers (including tariffs and non-tariff barriers) should
not be raised arbitrarily and tariff rates and market-opening commitments
are ‘bound’ in the WTO.
4. More competitive - discouraging ‘unfair’ practices such as export subsidies
and dumping products at below cost to gain market share.
5. More beneficial for less developed countries - giving them more time to
adjust, greater flexibility, and special privileges.
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International Business Environment

In a Nutshell
WTO offers the following ten benefits:
1. The system helps promote peace
2. Disputes are handled constructively
3. Rules make life easier for all
4. Freer trade cuts the costs of living
5. It provides more choice of products and qualities
6. Trade raises incomes
7. Trade stimulates economic growth
8. The basic principles make life more efficient
9. Governments are shielded from lobbying
10. The system encourages good government
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