Updated on: Apr 28th, 2022
8 min read
International business refers to trading services and goods in a worldwide market. It can also be recognised as the globalisation of trade. An International Business Environment (IBE) refers to the surroundings in which international companies carry on their businesses. It plays a critical role in the development and growth of a country.
An International Business Environment (IBE) involves different aspects like political risks, cultural differences, exchange risks, and legal and taxation issues. Thus, it is mandatory for the people at the managerial levels to work on factors comprising the international business environment as it is crucial for a country’s economy.
The various types or aspects of the international business environment are provided below.
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:
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:
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:
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:
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:
The competitive environment differs from country to country. The political, economic, and cultural environmental factors help determine the degree and type of competition that exists in a country. The most likely sources of competition can be well understood for a domestic organisation, but it isn’t the case when an organisation moves to compete in a new environment.
Competition can come from various sources, such as it can come from the private or public sector, large or small organisations, domestic or global organisations and traditional or new competitors.
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