Chapter 3
International Business
Environment
International Business Environment
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Environment- everything around us.
Business environment: Sum total of all the
forces surrounding & influencing the life and
development of the firm.
Internal Environment
Strengths
Weakness of the Org.
Business
Decision
External Environment
Business Opportunity
Threats to Business
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International Business Environment
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Business Dynamics to a large extent
depends on the environmental dynamics.
Environmental understanding becomes
more important in the area of international
business in which the environmental
forces of the home country interact with
the foreign environment.
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Environmental Characteristics
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Factors and Forces are external to the firm.
Essentially uncontrollable.
Environmental factors are dynamic-they
continuously change over time.
NEED ?
Anticipate, respond and adapt to the complexity and
rapid pace of various environmental forces changes
globally.
Being international environmental factors are given,
the firms should adapt its business strategy to suit
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the environmental factors.
Components of International Business Environment
Foreign Environment
Domestic Environment
Micro Environment
Internal
Environment
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Global Environment ( Uncontrollables)
International Economic Environment
Foreign Environment ( Uncontrollable)
Geographic Environment
Domestic Environment
( Uncontrollable)
Competitive Structure
( Uncontrollables)
- Production
Competitive
- Finance Structure
Economic Climate
(Controllable)
International Business
Decision
Domestic
Environment
- Human Resource
- Marketing
Political Environment
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Internal Environment
Represent firm’s business strategy and
decision with regard to- Production
 Finance
 Marketing
 Human Resources
 Research Activities
Firm can change them, but within the
constraints of various environmental factors.8
Microenvironment
Actors in the firm’s immediate environment which
directly influence the firm’s decisions and
operations. They are:
 Potential of New Entrants
 Competition
 Power of Customers
 Power of Suppliers
 Potential of Substitute Products/Services
Are Semi-Controllable.
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Macro Environment or Domestic
environment
Competitive Structure
Economic climate
Political & Legal forces
Uncontrollable
IMPACT ?
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Macro Environment
Political & Legal forces
Economic Conditions
Social-Cultural Environment
Technological Environment
Ecological Environment
Geographic
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Non-Economic Environment
Political
Socio-Cultural
Ecological
Legal
Geographic
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Political
Form of Government
Political Party System
Political Ideology
Role of Government
Political Stability
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Socio-Cultural
Language
Aesthetics
Attitude & values
Education
Religions & Superstition
Social groups &
Organizations
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Macro Environment- Indicators
Economic
Technological Political-legal Socio-cultural
-GDP trends
-Interest rate
-Money supply
-Inflation rate
-Unemployment
-Wages/prices
-Energy
availability/cost
-Disposable
income
-Total government
spending for R&D
-Total industry
spending for R&D
-Focus technological
efforts
-New products
-New development in
technology
-Productivity through
automation
-Monopoly regulation
-Environmental
protection laws
-Tax law
-Special incentives
-Attitudes toward
foreign company
-Laws on hiring and
promotion
-Stability of
government
-Lifestyle change
-Career expectation
-Regional shifts in
population
-Consumer behavior
-Rate of family
formation
-Growth rate of
population
-Age distribution of
population
-Life expectancy
-Birth rate
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Economic Forces
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Availability of credit
Interest rate
Inflation rate
GDP trends
Consumption patterns
Unemployment level
Wage and price control
Demand shift for goods/services
Imports/Export factors
Income difference by region/customer
Monetary policies
Fiscal policy
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Technological Forces
-Profound impact on organizations
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Computer
Tele communications
Internet
eCommerce
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Technological Forces
-Internet changes the nature of opportunities and threats
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Alters life cycle of products
Increases speed of distribution
Creates new products and services
Eases limitations of geographic markets
Alters economies of scale
Changes entry barriers
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Political-Legal Forces
-Key opportunities and Key Threats
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Antitrust legislation
Tax rates
Patent Laws
Quota
Lobbying efforts by International
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Political-Legal Forces
-Key Political-Legal Variables
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Government regulation and deregulation)
Tax law changes
Special tariffs
Changes in patent laws
Environment protection laws
Equal employment laws
Level of government subsidies
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Social-Cultural-Demographic Forces
-Key Variables
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Life expectancy rates
Per capita income
Average disposable income
Attitude toward business
Buying habits
Ethical concerns
Attitude toward saving
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Social-Cultural-Demographic Forces
Monitor Key Variables
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Racial equality
Average level of education
Government regulation
Attitude toward customer services
Attitude toward product quality
Social responsibility
Waste management
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Global or Foreign Environment
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World Economic Condition
International Financial Systems
Working of WTO, IMF, WB..
International Agreements
Regional Economic Groupings
World-wide Economic Recession
Initiatives of Regional levels
European Union (EU)
North American Free Trade Association (NAFTA)
Association of South East Asian Nations ( ASEAN)
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Differences Exist
1.
2.
Between domestic & foreign environments.
Among the environments prevailing in
different foreign markets.
Business Strategies that are successful in
one nation might fail miserably in another
nation.
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Relevance of International
Business Environment
Central Issues in entering into
international business  Which market (s) to select?
 How to enter into those markets?
- Decisions are strategic in nature and
influenced by the environmental forces.
- Target markets should have enough
market potential.
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Review
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How different political systems affect
the international business?
What are the implications of political,
economical and legal differences
among difference countries?
Differentiate between socialism and
individualism.
Group discussion: Reading case
CAMBODIA and answer the question.
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