Unit -II

International Business
Environment
Arun Mishra
9893686820
arunjimishra@gmail.com
Introduction
• Environment means surrounding.
• Business environment consists of the various
forces affecting the operations and
functioning of an organisation.
• Study of environment helps to know the
opportunities & threats of the
international business
• The business environment comprises
▫ Internal Factors
▫ External Factors
Internal Environment
Factors influence/affect the business from within.

• Organisational Structure
• Production
• Finance
• Marketing
• Human Resource
• R&D
External Environment
Factors influence/affect the business from
outside. Further divided in two:
• Micro External Environment
▫ Competitors, Customers, Market intermediaries,
suppliers, bankers/financers, shareholders etc.
• Macro External Environment
▫ Social & Cultural, Technological, Economic,
Political, Legal etc.
MICRO ENVIRONMENT
• The micro environment consists of the actors
in the company‘s immediate environment
that effect the performance of the company.

• These include
▫ Suppliers
▫ Marketing intermediaries
▫ Competitors
▫ Customers
▫ Publics.
MICRO ENVIRONMENT
• SUPPLIERS: Those who supply the inputs like
raw materials and components to the company.
• CUSTOMERS: A company may have different
categories of consumers like individuals,
households, industries & other commercial
establishments, government & other institutions.
A business exists only because of its customers.
• COMPETITORS: Include not the other firms,
which market the same or similar products.
MICRO ENVIRONMENT
• MARKETING INTERMEDIARIES: Firms
that aid the company in promoting, selling and
distributing its goods to final buyers, include
middlemen such as agents and merchants etc.

• PUBLIC is any group that has an actual or

potential interest in or impact on an
organisation’s ability to achieve its interests.
Media publics, citizens action publics &
local publics are some examples.
SUPPLIERS
• Suppliers provide products and services needed to
add value to own product and services.
• These services must be provided on time and
should meet ones specifications of quality.
• If requirements are not met then the production as
well as the quality suffers. It also changes the
perception of a customer to some extent.

IMPORTANT
1) A supplier should be reliable.
2) There should be more than one supplier in a company.
The ‘TOYOTA’ Case
• During 2009 – 2011, Toyota had to recall nearly
10 million vehicles all around Europe as the
accelerators were not working properly.
• It was because the supplier had supplied faulty
mechanical accelerators.
• Due to the faulty accelerators there were many
accidents out of which nearly 37 were fatal and
ended in death.
• Out of 10 million cars nearly 7 million were
Toyota Camry and Corolla.
• Toyota repaired all these cars and sent them
back to their owners , but they lost the trust of
the customers.
Competitors
 Every company faces a wide range of competitors.
 The competitors affect the business's profits by
trying to take business away from them.
 Companies must gain a strategic advantage by
positioning their products and services against
their competitors in the minds of their customers.
 It is all about positioning. Companies have
to differentiate itself from your competitors.
 If a company provide better products for a lower
cost - and possibly faster - than its competition,
then that company can compete with them in ways
they may not be able to match.
Market Intermediaries
• Firms that aid the company in promoting, selling
and distributing its goods to final buyers.
• Vital links between the company and the final
consumers.
• Include
 The middlemen and merchants who “help the
company find customers or close sales with them”
 Physical distribution firms which “ assist the
company in stocking and moving goods from their origin
to their destinations”
 Marketing service agencies which “assist the
company in targeting and promoting its products to the
right markets”
Publics
• Publics are small groups of people who follow
one or more particular issue very closely. They are
well informed about the issue(s) and also have a
very strong opinion on it/them.
• Publics can be categorized to :-
• Financial Publics
• Media Publics
• Government
• Local Publics
• General Publics
• Internal Publics
Macro Environment
MACRO ENVIRONMENT
• A company & the forces in its microenvironment
operate in a larger macro environment of forces that
shape opportunities & pose threats to the
company.
• The macro forces are, generally, more
uncontrollable than the micro forces.
• The Macro Environment consists;
▫ Economic Environment
▫ Political Environment
▫ Demographic Environment
▫ Legal Environment
▫ Cultural & Social Environment
ECONOMIC ENVIRONMENT
• Economic conditions, economic policies
and the economic system constitute the
economic environment of a business.
• The nature of the economy, the stage of
development of the economy, economic
resources, the level of income, the
distribution of income and assets, etc.- are
among the very import
• The economic policy of the government has a
very great impact on business.
ECONOMIC ENVIRONMENT
• Economic factors relate to the general conditions of
the economy within which a firm/business
operates.
• These factors can be :
• Economic Systems
• Inflation
• Interest rates
• Economic Growth rates
• Balance of Payments
• Levels of disposable incomes
• Whether the country is experiencing
boom/recession
Examples: Economic Environment
1. Increasing disposable incomes would
mean that people would have greater demand
for products. Therefore, firms would respond
to such increasing incomes by expanding their
businesses in such areas.
2. An increase in interest rates would mean
increase in borrowing costs for both consumers
and firms. Therefore, investments would be
curtailed or postponed resulting in lower
growth rates for the entire economy
POLITICAL ENVIRONMENT
• Political environment has close relationship
with the economic system and economic policy.
• Many countries today have laws to regulate
competition in the public interest.
• Certain changes in government policies such as
the industrial policy, fiscal policy, tariff
policy etc. may have profound impact on
business.
• Some policy developments create
opportunities as well as threats.
Political Relations & IB
• Political friendship results in growth of
bilateral/ multilateral trade.
• Types of Political system:
▫ Parliamentary Government (Open) - INDIA
▫ Absolutist Government (Close) – North Korea
• Party System:
▫ Two-Party System – USA, UK
▫ Multi-Party System – India, Germany, France
▫ Single-Party System - Egypt
▫ One-Party System – Cuba, Libya
 Political Factors Affecting
Business Environment
• Political factors are the factors relating to policies
and nature of the government.
• Some of the factors are :
• Taxation Policy
• Regulatory framework
• Political stability
• Factors of political instability – Corruption,
Social unrest, Govt. Policies, Negative attitude of
nationals.
• Nature of government’s policies towards
business
Example
World Bank in 2019 ranked India 63 in ease of doing
business against 77 in 2018
Example
World Bank in 2019 ranked India 63 in ease of doing
business against 77 in 2018
State/UT wise
Ease of Doing
Business
Ranking in
India in 2019.
Legal Environment
• International business managers should be aware
of the laws of the Land as they affect business.
• The Legal systems are classified into:
▫ Common Law
▫ Civil Law
▫ Labour Law
▫ Property Rights
▫ Companies act ,1956
▫ Consumer protection law
▫ Environment protection act
▫ Right to information act
▫ Income tax act
SOCIO-CULTURAL ENVIRONMENT
• The buying and consumption habits of the
people, their language, beliefs & values,
customs & traditions, tastes & preferences,
education are all socio-cultural factors that
affect business.
• Companies often include an examination of
socio-cultural environment before entering
their target markets.
 Factors Which Affect Socio-
cultural Environment
• Attitude of people
• Attitude to wealth
• Family
• Marriage
• Religion
• Education
• Social responsibilities
• Taste & Preference
Social Culture Adopted By Indians
• Language: Sometimes a firm faces language problems
like ford faced when they introduced their truck brand
named ‘fiera’ which means ugly old woman in Spanish.
• Taste & Preference: Taste & preference of a
consumer also affects a product’s demand, so
companies have to modify their product accordingly.
• Dressing & Lifestyle: These factors also impact the
demand for a product.
• Religion: Religious aspects also play a important role
in creating & deteriorating the demand for a product.
Strategies for dealing with Cultural
differences
• Making adjustments
• Communication
• Culture & Business ‘Ethics’
▫ Respect for human values & human rights
▫ Respect for local tradition
▫ Taking situational factors into consideration while
deciding ethical & unethical.
Example: McDonald’s
• McDonalds made segment
according to the demographic
in Indian societies.
• McDonalds made their food
according to religions in India.
• McDonalds believed in Total
Quality Management.
• They offer food at affordable
and convenience rates which
gives direct benefit to them.
DEMOGRAPHIC ENVIRONMENT
• The less-developed regions of the world
currently account for 76% of the world
population.
• The explosive world population growth has
major implications for business due to:
▫ Growing human needs to satisfy.
▫ Growing market opportunities.
• It is good to keep close track of demographic
trends and developments in their markets,
both at home and abroad.
DEMOGRAPHIC ENVIRONMENT
• Relevant variables:
▫ Changes in age structure.
▫ Changes in family structure.
▫ Geographic population shifts - Migration.
▫ Educational characteristics.
▫ Population diversity.
▫ Income Characteristics.
• Racial and ethnic diversity play a really
important role.
TECHNOLOGICAL ENVIRONMENT
• Forces that create new technologies, creating new
product and market opportunities.
• Technology has released wonders and horrors.
• The following technological trends must be taken
into consideration:
▫ Fast pace of technological change.
▫ Research & Development.
▫ Concentration on minor improvements.
▫ Increased regulation.
• A firm, which is unable to cope with the technological
changes, may not survive.
 TECHNOLOGICAL ENVIRONMENT
• Differing technological environment of different
markets may call for product modifications
▫ E.g. Many appliances are designed for 110V in USA.
They should be converted for 240V in India
• Technological developments may increase or
decrease the demand for some existing products
▫ E.g. voltage stabilizers help increase in sale of
electrical appliances in markets characterized by
frequent voltage fluctuations
▫ Introduction of TVs, Refrigerators, etc. with in-built
stabilizers adversely affects the demand for voltage
stabilizers.