INTERNATIONAL BUSINESS

ENVIRONMENT
 MEANING

 I.B.E means the factors or activities those

surround or encircle the international business.
 study of environment helps to know the
opportunities and threats of the international
business.
 DEFINATION
 “The process by which strategists monitor the
economic, governmental or legal, market or
competitive, supplier or technological,
geographic and social settings to determine
opportunities and threats to their firms”
william F. glueck
 BUSINESS ENVIRONMENTAL
FACTORS
Divided into 2 factors
 INTERNAL ENVIRONMENT
 EXTERNAL ENVIRONMENT
 INTERNAL ENVIRNOMENT
 HRM
 Organization structure
 Leadership style
 Financial management
 Marketing management
 Production management
 EXTERNAL ENVIRONMENT
 Political
 Economic
 Legal
 SocioCultural
 Technology
 ECONOMIC ENVIRONMENT
o Economic means connected with the economy
of a area or with the money that a society or
individual.
o Business depends on the economic

environment for all the needed inputs and to

sell the finished goods.
o There is a close relationship between business

and economic environment.

o
 MEANING
 E. E refers to the state of the economy-
business cycle, private vs public ownership,
rate of savings, investment, foreign trade,
industrial production, agriculture, planning.
 ECONOMIC SYSTEM
 Economic system is an organization of
institutions established to satisfy human needs
or wants.
 There are three types of economic system:
 Capitalism
 Communism
 Mixed economic system
 Capitalistic economic system
 it is also known as FREE ENTERPRISE
ECONOMY.
 capitalism is an economic system in which a
country’s business and industry are controlled
and run for profit by private owners rather than
by the government.
 under this economic system, customer
allocates resources.
 this economic system provides for “economic
democracy”
 Capitalistic system believing in private
ownership of production and distribution
facilities.
 Features of capitalism
 Freedom of enterprises
 Private ownership
 Profit motive
 The market system
 Customers sovereignty
 Competition
 Freedom of contracts
 Limited role of government
 Merits
 efficient utilization of resources
 democratic
 efficiency properly rewarded
 automatic balance in the system
 Encourages capital formation
 Demerits
 wastage and misallocation of resources
 economic instability
 class struggle
 Unemployment and corruption
 inflation
 socialism
 socialism is an economic system where the
means of production are either owned or
managed by the state and where the investment
structure, consumption, allocation of resources,
distribution of income are regulated and
directed by the state.
 features
 equitable distribution of income
 government ownership
 plan of action
 Merits
 better allocation and utilisation of resources
 elimination of unemployment
 no cyclic fluctuation
 no class struggle
 reduction in inequality of income
 Demerits

 lack of Incentives
 concentration of economic power in the hands
of state.
 misallocation of resources
 no consumer sovereignty(AUTHORITY)
 Mixed economy
 it compromise between capitalist and socialist
economic system
 it examine certain features of private
capitalism and state capitalism.
 there is an existence of public and private
sectors and overall government regulations of
the economy
 POLITICAL ENVIRONMENT
 The political environment refers to the type of the
government, the government relationship with a business,
& the political risk in the country. Doing business
internationally, therefore, implies dealing with a different
type of governments, relationships, & levels of risk.
 There are many different types of political systems, for
example, multi-party democracies, one-party states,
constitutional monarchies, dictatorships (military & non-
military). Therefore, in analyzing the political-legal
environment, an organization may broadly consider the
following aspects:
 The Political system of the business;
 Approaches to the Government towards business i.e.
Restrictive or facilitating;
 Facilities & incentives offered by the Government;
 Legal restrictions for instance licensing requirement,
reservation to a specific sector like the public sector, private or
small-scale sector;
 The Restrictions on importing technical know-how, capital
goods & raw materials;
 The Restrictions on exporting products & services;
 Restrictions on pricing & distribution of goods;
 Procedural formalities required in setting the business
 Political Risk
 Risks Related to Government Trade policies:
• Tariffs,
• exchange-rate controls,
• quotas,
• export/import license requirements,
• other trade barriers (embargos, sanctions)
 Risks Related to Government Economic Policy:
• Controlling foreign investment through taxes
• transfer of assets from company to local ownership:
- Confiscation (without compensation)
- Expropriation (some reimbursement)
- Creeping expropriation (paperwork, judicial systems,
regulations)
- Nationalization (local government takes over)
- Domestication (transfer to local enterprises)
 Risks Related to Labor and Action Groups
 Risks Related to Terrorism
 Minimizing Political Risk
 Understand both ruling and opposition parties.
 Remain politically neutral.
 Be exemplary corporate citizens.
 Sell a quality product or service that is essential for
local development.
 Partner with local companies and create local
expertise.
 Use local suppliers.
 Obtain insurance coverage against expropriation,
nationalization, confiscation, and terrorism.
 TECHNOLOGICAL ENVIRONMENT
 New product development
 New organisational styles
 New management techniques
 New marketing techniques
 New production techniques
 Networks, warehouse management, electronic
data interchange (EDI)
 Web/Internet
 The technological environment comprises factors related to the
materials & machines used in manufacturing goods & services.
 Receptivity of organizations to new technology & adoption of new
technology by consumers influence decisions made in an
organization.
 As firms do not have any control over the external environment,
their success depends on how well they adapt to the external
environment.
 An important aspect of the international business environment is
the level, & acceptance, of technological innovation in different
countries.
 The last decades of the twentieth century saw major advances in
technology, & this is continuing in the twenty-first century.
 Technology often is seen as giving firms a
competitive advantage; hence, firms compete for
access to the newest in technology, &
international firms transfer technology to
be globally competitive.
 It is easier than ever for even small
business plan to have a global presence thanks to
the internet, which greatly grows their exposure,
their market, & their potential customer base.