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Unit 2 Ibe

The document outlines the various aspects of the international business environment, including political, economic, technological, and cultural factors. Each aspect highlights the importance of understanding local conditions, government relationships, economic systems, technological advancements, and cultural values for successful international operations. Key considerations for businesses include political risks, economic growth stages, technological acceptance, and cultural dimensions as defined by Hofstede.

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Sakshi Dhakad
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17 views5 pages

Unit 2 Ibe

The document outlines the various aspects of the international business environment, including political, economic, technological, and cultural factors. Each aspect highlights the importance of understanding local conditions, government relationships, economic systems, technological advancements, and cultural values for successful international operations. Key considerations for businesses include political risks, economic growth stages, technological acceptance, and cultural dimensions as defined by Hofstede.

Uploaded by

Sakshi Dhakad
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Types of International Business Environment

The various types or aspects of the international business environment are


provided below.

Political Environment in International Business

The political environment means the political risk, the government’s


relationship with a business, and the type of government in the country.
Conducting business internationally implies dealing with different kinds of
governments, levels of risk and relationships.

There are different types of political systems, such as one-party states,


multi-party democracies, dictatorships (military and non-military) and
constitutional monarchies. Thus, an organisation needs to take into account
the following aspects while planning a business plan for the overseas
location:

• Political system of the business


• Approach of the government towards business, i.e. facilitating or
restrictive
• Incentives and facilities offered by the government
• Legal restrictions for licensing requirements and reservations to
a specific sector like the private, public or small-scale sector
• Restrictions on importing capital goods, technical know-how and
raw materials
• Restrictions on exporting services and products
• Restrictions on distribution and pricing of goods
• Required procedural formalities in setting the business

Economic Environment in International Business


The economic environment refers to the factors contributing to the
country’s attractiveness to foreign businesses. It can differ from one nation
to another. Better infrastructure, education, healthcare, technology, etc.,
are also often associated with high levels of economic development. The
levels of economic activities combined with infrastructure, education, and
the degree of government control affect the facets of doing a business.

Usually, countries are divided into three main economic categories, i.e.
more industrialised or developed, less developed or third world, and the
newly emerging or industrialising economies. There are significant
variations within each economic category. Overall, the more developed
countries are rich, the less developed are poor, and the newly
industrialising are those moving from poor to rich. These distinctions are
made based on the Gross Domestic Product per capita (GDP/capita).

A business needs to recognise the economic environment to operate in


international markets successfully. While analysing the economic
environment, an organisation intending to work in a particular business
sector should consider the following aspects:

• Economic system to enter the business sector


• Stage and pace of economic growth
• Level of national GDP and per capita income
• Incidents of taxes, direct and indirect tax
• Available infrastructure facilities and the difficulties
• Availability of components, raw materials and their cost
• Sources of financial resources and their costs
• Availability of workforce, managerial and technical workers, their
salary and wage structures

Technological Environment in International Business

The technological environment includes factors related to the machines


and materials used in manufacturing services and goods. As organisations
do not have control over the external environment, their success depends
on how they will adapt to the external environment. A significant aspect of
the international business environment is the level and acceptance of
technological innovation in countries.

The last decade of the twentieth century saw significant advances in


technology, and it is also continuing in the twenty-first century. Technology
often gives organisations a competitive advantage. Hence, organisations
compete to access the latest technology, and international organisations
transfer technology to be globally competitive.

Due to the internet, it is easier even for a small business plan to have a
global presence, which grows its exposure, market, and potential customer
base. For political, economic and cultural reasons, some countries are
more accepting of technological innovations, while others are less
accepting. In analysing the technological environment, the organisations
should consider the following aspects:

• Level of technological developments in the country as a whole


and specific business sector
• Pace of technological changes and obsolescence
• Sources of technology
• Facilities and restrictions for technology transfer
• Time taken for the absorption of technology

Cultural Environment in International Business

The cultural environment is one of the crucial components of the


international business environment. It is the most difficult to understand as
the cultural environment is unseen. It has been described as a commonly
held and shared body of general values and beliefs that determine what is
right for one group, according to Kluckhohn and Strodtbeck.

National culture is defined as the body of general values and beliefs shared
by a nation. Beliefs and values are usually formed by factors such as
language, history, geographic location, religion, education and government.
Thus, organisations begin a cultural analysis by understanding these
factors. The well-known model is the one developed by Hofstede in 1980.

The model by Hofstede proposes four dimensions of cultural values, which


are as follows:

• Individualism – It is the degree to which a nation encourages


and values individual decision making and action
• Uncertainty avoidance – It is the degree to which a nation is
willing to deal with and accept uncertainty
• Power distance – It is the degree to which a nation sanctions
and accepts differences in power
• Masculinity – It is the degree of the gender gap in a society

Hofstede’s model of cultural values has been extensively used as it


provides data for a wide array of countries. Many managers and academics
found this model helpful in exploring management approaches appropriate
in different cultures.

For example, in a country that is high on individualism, one expects


individual tasks, goals and individual reward systems to be effective, while
the reverse would be the case in a country that is low on individualism.
While analysing cultural factors, the organisation should consider the
following aspects:

• Approaches to society towards business in specific and general


areas
• Influence of cultural, social, and religious factors on the
acceptability of the product
• Lifestyle of people and the products used by them
• Level of acceptance and resistance to change
• Demand for a specific product for a specific occasion
• Values attached to particular products, i.e. possessive or the
functional value of products
• Consumption pattern of the buyers

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