The legal and political environment of foreign markets has a direct effect on your business. Furthermore, these factors can vary from one city or state to the next.
International Business Environment
For example, each state in the U. Companies must comply with the laws and requirements of the countries where they do business and obtain new licenses or pay higher fees if necessary. A good example is Sweden where alcoholic beverages stronger than 3. If your company specializes in liquors and spirits, your options are limited.
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You cannot sell your products in supermarkets or set your own prices. Therefore, your ability to make a profit is limited. Each country has its own culture, which affects international business in three main areas: organizational hierarchy, etiquette and communication.
Japan, for instance, values social hierarchy in all aspects of life, including work. Scandinavian countries, on the other hand, have a relatively flat organizational hierarchy. Spain and other Mediterranean countries emphasize leisure time; Germany and Japan value efficiency and have strict workplace rules. Also, business professionals from different countries may view the purpose of negotiation or verbal agreement differently. For some, the goal of a contract is to create a relationship between the parties involved while for others, it's legally binding.
Additionally, what's acceptable in one country may be considered offensive or fraudulent in another. As a business owner, it's important to consider these cultural aspects before you go global.
Its social environment determines a country's value system. For example, customers living in one country may not be interested in the same products and services as those residing in another country. Technology is one of the primary environmental factors you should consider before expanding your business. Does the host country have the technology and skills you need to run your business smoothly?
Access to modern technologies is essential in industries like marketing, manufacturing, medicine and research. A creative agency or a research lab, for instance, have greater technology requirements than a law firm or a consulting company. Before you go global, make sure you have a good understanding of the international business environment. Research your target markets and determine whether or not they provide what you need to grow your business and generate revenue.
In addition to the environmental factors listed above, consider the competition, customer demand, climate, environment-related laws and workplace efficiency.
The International Business Environment: A Handbook for Managers and Executives
Andra Picincu is a digital marketing consultant with over 10 years of experience. This is in contrast with a wholly owned subsidiary, when a firm owns percent of the stock of a company in a foreign country because it has either set up a new operation or acquires an established firm in that country. Exports and import. Strategic variables affect the choice of entry mode for multinational corporation expansion beyond their domestic markets.
These variables are global concentration, global synergies, and global strategic motivations of MNC. To achieve success in penetrating a foreign market and remaining profitable, efforts must be directed towards the planning and execution of Phase I. The use of conventional SWOT analysis , market research , and cultural research, will give a firm appropriate tools to reduce risk of failure abroad. Risks that arise from poor planning include: large expenses in marketing, administration and product development with no sales ; disadvantages derived from local or federal laws of a foreign country, lack of popularity because of a saturated market , vandalism of physical property due to instability of country; etc.
There are also cultural risks when entering a foreign market. Lack of research and understanding of local customs can lead to alienation of locals and brand dissociation. As such, they are key matters for the board and impinge on the whole business, rather than just an isolated unit. A company has to be conscious about the production costs to not waste time and money. If the expenditures and costs are controlled, it will create an efficient production and help the internationalization.
How a government governs a country governance can affect the operations of a firm. The government might be corrupt , hostile, or totalitarian ; and may have a negative image around the globe. A firm's reputation can change if it operates in a country controlled by that type of government.
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Elections or any unexpected political event can change a country's situation and put a firm in an awkward position. Political risk tends to be greater in countries experiencing social unrest. When political risk is high, there is a high probability that a change will occur in the country's political environment that will endanger foreign firms there.
Corrupt foreign governments may also take over the company without warning , as seen in Venezuela. Technological improvements bring many benefits, but some disadvantages as well. Some of these risks include "lack of security in electronic transactions , the cost of developing new technology Companies that establish a subsidiary or factory abroad need to be conscious about the externalizations they will produce, as some may have negative effects such as noise or pollution.
This may cause aggravation to the people living there, which in turn can lead to a conflict. People want to live in a clean and quiet environment, without pollution or unnecessary noise. If a conflict arises, this may lead to a negative change in customer's perception of the company. Actual or potential threat of adverse effects on living organisms and environment by effluents, emissions, wastes, resource depletion, etc.
As new business leaders come to fruition in their careers, it will be increasingly important to curb business activities and externalizations that may hurt the environment. These are the economic risks explained by Professor Okolo: "This comes from the inability of a country to meet its financial obligations. The effect of exchange-rate and interest rate make it difficult to conduct international business. In practice, the biggest problem arising from economic mismanagement has been inflation. Historically many governments have expanded their domestic money supplying misguided attempts to stimulate economic activity.
According to Professor Okolo: "This area is affected by the currency exchange rate, government flexibility in allowing the firms to repatriate profits or funds outside the country. The devaluation and inflation will also affect the firm's ability to operate at an efficient capacity and still be stable. It might be higher or lower in the host countries. Then "the risk that a government will indiscriminately change the laws, regulations, or contracts governing an investment—or will fail to enforce them—in a way that reduces an investor's financial returns is what we call 'policy risk.
Terrorism is a voluntary act of violence towards a group s of people. In most cases, acts of terrorism is derived from hatred of religious, political and cultural beliefs. Terrorism not only affects civilians, but it also damages corporations and other businesses. These effects may include: physical vandalism or destruction of property , sales declining due to frightened consumers and governments issuing public safety restrictions.
Firms engaging in international business will find it difficult to operate in a country that has an uncertain assurance of safety from these attacks.
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Bribery is the act of receiving or soliciting of any items or services of value to influence the actions of a party with public or legal obligations. This is considered to an unethical form of practicing business and can have legal repercussions. Firm that want to operate legally should instruct employees to not involve themselves or the company in such activities. There has been growth in globalization in recent decades due to the following factors. Managers in international business must understand social science disciplines and how they affect different functional business fields.
To maintain and achieve successful business operations in foreign nations, persons must understand how variations in culture and traditions across nations affect business practices. This idea is known as cultural literacy. Without knowledge of a host country's culture, corporate strategizing is more difficult and error-prone when entering foreign markets compared with the home country's market and culture.
This can create a "blind spot" during the decision making process and result in ethnocentrism.
Education about international business introduces the student to new concepts that can be applicable in international strategy in topics such as marketing and operations. A considerable advantage in international business is gained through the knowledge and use of language, thereby mitigating a language barrier. Advantages of being an international businessperson who is fluent in the local language include the following:. In many cases, it plays a crucial role. It is truly impossible to gain an understanding of a culture's buying habits without first taking the time to understand the culture.
Examples of the benefit of understanding local culture include the following:. By focusing on these, students will gain a better understanding of Political economy. These are tools that would help future business people bridge the economic and political gap between countries. There is an increasing amount of demand for business people with an education in international business.
A survey conducted by Thomas Patrick from University of Notre Dame concluded that bachelor's degree and master's degree holders felt that the training received through education were very practical in the working environment. Increasingly, companies are sourcing their human resource requirement globally. For example, at Sony Corporation , only fifty percent of its employees are Japanese. The following table provides descriptions of higher education in international business and its benefits.
From Wikipedia, the free encyclopedia. Business administration Management of a business Accounting. Management accounting Financial accounting Financial audit. Business entities. Corporate group Conglomerate company Holding company Cooperative Corporation Joint-stock company Limited liability company Partnership Privately held company Sole proprietorship State-owned enterprise. Corporate governance. Annual general meeting Board of directors Supervisory board Advisory board Audit committee.
Corporate law. Commercial law Constitutional documents Contract Corporate crime Corporate liability Insolvency law International trade law Mergers and acquisitions. Corporate title. Commodity Public economics Labour economics Development economics International economics Mixed economy Planned economy Econometrics Environmental economics Open economy Market economy Knowledge economy Microeconomics Macroeconomics Economic development Economic statistics.
Types of management. Business analysis Business ethics Business plan Business judgment rule Consumer behaviour Business operations International business Business model International trade Business process Business statistics.