International Business Environment can be defined as the environment in which the international businesses operate and communicate with each other to arrive at a mutual agreement regarding the terms and conditions of trade. It can even be described as the surroundings in which various organizations run their business internationally, taking decisions keeping in mind various factors prevalent in-home environment. It is defined as the series of processes mainly concerning industry and commerce on an international level. There is no uniformity in IBE and domestic environment. IBE includes legal, technological, economic, political, social, tax and cultural environments.

The political scenario affects the operation of business. It is advisable to gather insight into political environment of the host country before going ahead with the trade. Economic factors also play an important part in an international business. As finance is the blood of any business. The economic factors include all the essential elements which attract an organization to trade internationally. Each country has its own set of laws. Organizations tend to be in their comfort zone operating in their home country. But operating in a different country with unfamiliar laws, systems and policies is a big challenge. The success of an organization depends upon how well it operates in the external environment.

[i]The organizations or companies which are looking opportunities across the border, the term international business is used for them. For example- Ford, MC-Donald, Disney, BMW etc. The main aim behind going global is organization foresee the opportunities coming in their way, they utilize all their strengths in exploiting such opportunities which will provide numerous benefits to them. They follow up their weakness to prevent any threats to the organization. The organizations which can cope up with the challenges faced in international environment, determines its success. There is vast amount of competition prevailing in foreign markets, the organizations going global must formulate different strategies related to product and price to survive in such environment.

Organizations operating in international environment face rivalry pressures. They have to deal in products at competitive prices and at the same time goods must be modified to suit local needs. Customization of products increases overall operating costs. They face various challenges including availability of labor at cheap rates, tax complexities, patent laws, distribution etc. these organizations need to formulate policies to cope up with the conflicting issues.

Internal and External Environment

The likelihood of business depends not only on resources but also on the environment. A business operates in two environments- Internal and External environment. The former is controllable and the latter being uncontrollable. The internal environment is also called microenvironment and external environment is also called macro environment. The internal environment or microenvironment consist of factors that have an immediate impact on the performance of a business. It includes- suppliers, customers, and competitors. The external environment or macro environment on the other hand consist of large forces whose actions have a major impact on the business. They include- legal, political, environmental, cultural, technological, economic factors etc.

Reasons of firms engaging in International Business

• Growth aspects- firms go overseas to extract opportunities. The profits they have earned in local markets they invest it in foreign markets to expand their business. It also helps in proper utilization of resources.[ii]
• Earn higher profits- firms can earn high profits abroad as the market is very big. It is a large platform of opportunities.
• Sales expansion- the profits can only be earned if the sales are increased. Engagement in international business helps in sales expansion as there are more consumers in the world than in a single country.
• Helps in reducing cost of production- sometimes producing in other countries seems to be more beneficial than manufacturing in one’s home country. Cost of inputs can be less in other countries. It will help in reducing overall production costs.
• Minimizing risks- engaging in business in a developed country has more advantage. A country which is underdeveloped or economically backward involves more risk. It leads to fluctuations in sales and profits. These fluctuations can be avoided in an economically developed country.

Global Environment

For extracting beneficial opportunities many firms or companies go global. Due to day-to-day developments in fields of technology and commerce world has become a smaller place. It has become easier than yesterday to connect, communicate, and even trade. So, business which are well established in their home country opt for going global due to its numerous advantages. Globalization along with benefits brings many challenges too. Proper strategies must be framed to cope up with these challenges. The main aim of businesses going overseas is to earn plenty of profits.

[iii]Globalizations give rise to threats as it withdraws protection from the domestic producers by opening their market to overseas competitors. There is a decrease in production of textile, footwear, and toys from the European and USA markets as an outcome of competition from low-cost countries including china, Vietnam, Pakistan, Bangladesh. There are three main indicators of globalization- international trade in goods and services, transfer of funds from one country to another and movement of people beyond the national border.

In case of analysis of global environment, the following should be considered-

• The taxation aspects and the tariff structure
• Cost advantage due to large scale production and advancement of technology
• Attitude of other exporting countries on dumping
• Attitude of customers overseas
• Amount and nature of benefits in the form of subsidies and incentives both financial and non- financial.

Tools for environment analysis

Pest Analysis

It is the analysis of political, economic, social, and technological aspects which affect the business of an organization. It includes all the external factors which a particular organization must consider before entering in a business transaction. These factors are also called the macro factors. The company must research on them prior to making a business decision and form appropriate strategies on the same. This analysis will provide a clear picture to the organization planning to establish a business abroad about the environment and its significant facets in which it will operate. Not all external factors affect a business so relevant must be separated from irrelevant ones. Only the relevant ones must be included in pest analysis. Just Gathering information does not fulfill the task, evaluation is equally important.[iv]

Benefits-

• It helps in finding various opportunities and provide warning signals to prevent threats.
• It helps in finding which projects are beneficial or which will fail.
• It provides a deep insight into the environment in which the business will be operated.
• It provides a clear picture free from assumptions
• It even provides a direction, to shape business prospects accordingly rather working in

a contradictory manner.

Political factors-

Some political factors which must be considered are-

• Get information regarding any local, state, national elections to be held in that country. Who are the political parties, their views on business etc.
• Laws presently applicable in the country
• Any previous taxation laws or other legislations which could affect the business
• How can business regulation affect the business? Is there any trend towards regulation and deregulation?
• For what period, a particular legislation is applicable in that country?
• What policies, principles and procedures are framed by government on businesses?
• What is its take on corporate social responsibility, other corporate aspects, environment, and consumer protection?
• What are the data, privacy and IPR protection laws prevalent in that country?[v]

Economic Factors-

• Is the economy stable?
• Is there any fluctuation in exchange rates or are they stable?
• What is the availability of workforce? Is it easy to get skilled work force? Or it will be very expensive to hire labor?
• Consider income patterns of consumers. Including saving, disposal etc.
• What affect does globalization has on economic environment?
• Is credit available to businesses? What are the regulations behind it? How will it affect the business?[vi]

Socio-cultural factors-

• What is the population growth rate? How it is likely to change?
• How religious beliefs and thinking of people affect the business?
• What is the employment trends individual’s attitude towards their work?
• Are there any social taboo’s? how can they affect the business?
• What is the degree of society’s health and education? How can it affect the business?[vii]

Technological factors-

• What are the existing technologies? What can you learn from them?
• Are there any new technologies?
• What are the technologies used by competitors?
• What safeguards are followed for IT protection?
• What is the area of research of government and education institutes?[viii]

Past Analysis Template

Political                                              

• Stability of government                
• Taxation aspects
• Intellectual property laws
• Corruption
• Health policy
• Employment law
• Privacy and data protection[ix]

Economic

• Inflation rates
• Labor costs
• Unemployment trends
• Climate change
• Weather
• Availability of credit

Technological

• Technological level
• Rate of technology
• Laws regarding technology
• Infrastructure of communication

Social

• Education
• Lifestyle
• Religious beliefs
• Buying habits
• Family size
• Minorities

Pestel Analysis

This tool is like Pest analysis, its aim is same as that of pest analysis to evaluate the external factors which would affect the organization. Along with constraints of pest it also includes environmental, ecological, demographic, legal aspects.[x]

Practical Illustration of Swot Analysis

1. McDonald’s

Company: McDonald’s Corp.

CEO: Chris Kempczinski

Founders: Richard and Maurice McDonald’s

Year founded: 1940

Headquarters: Chicago, Illinois

Number of employees: 210000 (dec 2018)

Annual revenue: $21.025 billion (dec 2018)

Profit: $5.925 billion (dec 2018)[xi]

Strengths

• It is the tenth most valuable brand
• Delicious food
• A real estate company
• Various initiatives of technologies
• Highest brand value
• Quality control improvised

Weakness

• Franchise business model
• Interruptions in supply chain
• Lack of employee satisfaction
• Breakfast menu has lost its fascination

Opportunity

• Value meals
• Innovative products
• Expansion globally
• Reconstruction of brand image

Threats

• Many competitors
• Risky investments
• Environmental and ecological concerns
• While going global main concern is of cultural threat

• Netflix

Company: Netflix

CEO: Reed Hastings

Founding year: 1997

Head quarter: Los Gatos, USA

Number of employees: 7100

Annual revenue: $20.15 billion (2019)

Profit: $1.86 billion (2019)[xii]

Strengths

• Growing exponentially
• Brand reputation
• Originality
• Affordable by all
• Award winning shoes

Weakness

• Copyrights are limited
• Rising debts
• Rigid pricing
• Increasing prices
• Overdependence on local market
• Rising Operational costs

              Threats

• competition
• piracy
• strict government regulations
• hacked accounts
• carbon emission

               Opportunities

• low price mobile streaming option
• expansion of global customer base
• alliances
• introducing cheaper annual subscriptions

Porters five forces model

Porters five force model is also an analysis tool, which provides five forces to estimate profitability of a particular business and provides a guidance to firms in framing their competitive strategies. It includes- Threat of entry, industry rivalry, threat of substitutes, bargaining powers of buyers and bargaining power of suppliers.

Conclusion

Establishing business abroad has both merits and demerits. The right step must be taken. Various factors affecting the environment must be identified and evaluated. Proper strategies should be framed to handle threats and overcoming weakness. Strengths should be utilized for earning higher profits and opportunities should be extracted in a positive way. Analysis tools provide detail guidelines on beneficial transacting a business overseas.

Frequently Asked Questions

What is international business environment?

 It can be described as the surroundings in which various organizations run their business internationally, taking decisions keeping in mind various factors prevalent in-home environment. It is defined as the series of processes mainly concerning industry and commerce on an international level.

What is global business environment?

When firms or organizations plan to go abroad for establishing their business. The environment in which they would operate or the factors prevailing in that environment would affect a business is called global business environment.

How does the international environment affect a business?

The international environment can affect a business in both positive way or a negative way. Right strategies should be formulated to take advantage of opportunities and safeguard their business from negative effects of threats.

Why firms engage in international business?

Firms engage in international business to earn higher profits, in some cases for stability purpose and better utilization of resources.

---

Reference

[i] Leslie Hamilton, Philip Webster, The International Business Environment, (2^nd edition,2012), OUP, Oxford

[ii] John Daniels, International Business Environment and Operations, (14^th edition,2012), Pearson College Division

[iii] Ian Brooks, Jamie Weatherston, Graham Wilkinson, The International Business Environment, (2004), financial times prentice hall

[iv] The Institute of Company Secretaries of India, International Business-Laws and Practices, (2014)

[v] Ibid

[vi] Ibid

[vii] Ibid

[viii] Ibid

[ix] Ibid

[x] Ibid

[xi] Bstrategyhub.com

[xii] Ibid