International Business Environment: Globalization, Meaning, Scope, Factors and Benefits
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International Business is catching attention by fire and being applauded for its sustained growth and expansion in the last few decades. Most goods, services, skills and information are being marketed globally on daily basis. The self-reliance theory of Nations has taken a back seat and now a new wave constituting procurement and supply of goods and services is setting in. Countries are now being intertwined with respect to trade and investment. The very reason behind this proximity between nations is rather hidden in the fact of revolutionized system of communication and technology.
Big businesses profit from, as well as contribute to, the skyrocketing interdependence of nations. Companies like Motorola have operations in multiple countries and derive revenue accordingly through its foreign operations.
International business and globalization are two sides of the same coin and go hand in hand. The companies are required to equip themselves to tackle the intricacies of the foreign environment since it will boost the business operations globally.
What is International Business and its meaning?
When the activity of business happens to transcend borders triggered by exchange of goods and services, then it is deemed to be called as international business. The word International business cannot be crystallized into a single universally accepted definition, despite there being many definitions. It involves not only movement of goods and services but also intellectual property, technology and capital.
- Business environment can be characterized in terms of:
- Totality of external forces
- Specific and general forces
- Dynamic nature
- Key players in international business may include multinational corporations, small businesses and entrepreneurs
Elements of business environment
There exist 5 most important elements that influence business environment are as follows;
Importance of international business environment
The factors that cause or drive companies to engage in international business can be classified into two parts: pull factors and push factors. Pull factors are proactive reasons that draw a company to foreign markets in order to achieve relative growth of the company. The push factors are compulsions of domestic market prospects, such as market saturation, that propel firms to internationalize.
International business environment is important from various point of views, since it helps in following ways:
- Helps in expansion
- Helps in managing product life cycle
- Technology advantages
- New business opportunities
- Proper use of resources
- Availability of quality products
- Earning foreign exchange
- Helps in mutual growth
- Investment in infrastructure
International Business: Scope
Scope of International business has a broad reach since it concentrates on specific issues and opportunities that arise in the business world when a company operates on a global scale. International business is a broad area of business that has been tailored to absorb unique characteristics of the global climate.
In comparison to the domestic world, foreign companies operate in highly unpredictable environments wherein the rules are often vague, inconsistent, and subject to rapid change.
International business is inclusive of trade in services, foreign trade, portfolio investment and direct investments (FDIS)
International Business: political environment
The role of politics in business environment has long been implicitly recognized. Variations of government or state officials, along with aggression and conflict, are common political occurrences. Political risk in business occurs as the business climate undergoes difficult-to-predict changes as a result of political reform. These shifts in the market environment are considered a threat because they have the potential to greatly affect a company's profit or other objectives. Constraints on the firm typically encompass expropriation, restrictions on remittance of profits, discriminatory taxation, and public sector competition.
International business: technological environment
With ever changing technology and unreliability of external factors, the company that understands it and adapts its operations likewise shall have an upper hand in capturing the market. The companies must take into account the fact that technology becomes obsolete within a blink of eye and therefore must readily adopt its newer forms to have a competitive edge.
International Business: cultural environment
The cultural environment in which the international business has to operate is quiet complex in itself since fundamental values and attitudes differ from country to country. Point to be noted is that the culture is a byproduct that has stretched over a long time in evolving and dispersing. It can cast pose major conflicts.
International Business Strategy
International business strategy involves balancing an MNE's core competences (in contrast to competitors) with the challenges and opportunities encountered in geographically dispersed environments that cross international borders.
Types of International Business Environment
The following types of international business environment can be enlisted as follows:
- Imports and Exports
- Licensing: Franchising
- Outsourcing and Offshoring
- Joint Ventures and Strategic Partnerships
- Multinational Companies
- Foreign Direct Investment
International Business: Benefits
International business offers variety of benefits to both the countries and business entities which are as follows:
- It encourages a country's specialization in the production of goods that are both high-quality and affordable.
- It aids a country's growth prospects while also providing opportunities for jobs.
- Individuals may use goods and services created in other countries to boost their quality of living, thanks to international business.
- It assists companies in increasing revenues by selling goods in countries where prices are high.
Is International business affected by demographic variables?
Our main query at hand is to know whether demographic environment does not influence the international business decisions? To answer this first we should know about demographics. Demographics are a set of attributes that can be used to assess a consumer's product preferences or shopping patterns. Some companies use these characteristics to identify their most valuable customers. Some of the demographic variables that affect international business are as follows:
- Income’s influence
- Age variables
- Geographic Regions
- Level of education
What are the factors that affect international business environment?
- Political Factors: International business is vulnerable to political environment of a country. To be specific political risks might include war, revolution, civil disturbance, closed trade routes, nationalization, trade embargos and inconvertibility of local currency. Government policies can have a profound effect on business through introduction of new regulations and legislations.
- Financial and monetary factors: International transactions are exposed to financial risks such as cost and availability of capital in a number of countries. Further fluctuation in exchange rates can have a tremendous impact on the economic balance of international business.
- Legal Factors: Parties acting internationally are subject to several jurisdictions. The multiplicity of laws can lead to the delicate situation of mutually exclusive obligations.
- Interpersonal factors: It constitutes barriers to effective communication. Typically parties to an international business find it difficult to understand, predict and monitor the behavior and wants of other side.
- Culture: Cultural differences pose a risk factor and is a source of frequent conflicts and act as a barrier to effective conflict management. Fundamental values and attitudes differ by large scale.
In the nut shell it can be concluded that different markets, cultures, legal systems, economies, and technology contribute to the complexity in international business, all of which must be incorporated into business policies and practices. International business devise strategies to take advantage of the opportunities presented by the environment. As a direct consequence, international business differs from domestic business due to differences in the environmental dynamics and operational nature.