Key Factors Influencing International Business Analyzing similarities and dissimilarities prevalent in countries given wisdom; selecting a country for business enkindles spirit and minimizing risks knocks the door of success.
Learning value: This This chap chapte terr high highli ligh ghts ts the the majo majorr fact factors ors infl influe uenc ncin ing g the the dire direct ctio ion n of international business; 1. 2. 3. 4. 5. 6. 7. 8.
Importanc Importancee of of enviro environmen nmental tal factors factors Econom Economic ic env enviro ironme nment nt Soci Social al envi enviro ronm nmen ent t Politi Political cal env enviro ironme nment nt Cult Cu ltur ural al envir environ onme ment nt Techn Technolo ologic gical al envir environm onment ent Lega Legall env envir iron onme ment nt Compet Competiti itive ve env enviro ironm nment ent
A pilot has to check the atmosphere prior to take-off and landing his aircraft. A sailor has to understand the depth of waters before sailing peacefully. A farm farmer er has has to plan plantt seed seedss depe depend ndin ing g on the the natu nature re of the the soil soil and and monsoon. On the same line, an international business entry or operation depends upon multiple environmental factors. They may change the direction, strategy and every moment of international business operations. Prior to going deep in to the topic, we can ask ourselves few questions and seek answers.
a. Why ENRON could not succeed in India and also in whole
world? b. Wh What at is the the majo majorr hind hindra ranc ncee of succ succes esss of Ke Kell llog ogg g in India? c. Wh Whyy KF KFC C has not made made any break break throu through gh in India India as it did in other countries? d. What made made Whirlpool Whirlpool & Caterpillar Caterpillar stop stop business business in India? India? An international marketer is required to understand, evaluate and work out various parameters before venturing into any country. These Parameters are called environmental factors and they determine the direction and purpose of the the inte intern rnat atio iona nall busi busine ness ss oper operat atio ion. n. Many Many deci decisi sion onss depe depend nd upon upon environmental factors right from selection of the country, location of the plant plant,, liaiso liaison n with with the govern governmen ment, t, and entry entry of invest investmen mentt from local local bodies, bodies, product product launch, launch, channel channel management management,, promotion promotion and opening opening of outlets. The first challenge for an organization is to navigate from its home country country to the host country. Thereafter Thereafter it has to develop develop a proper proper system system so that that the the vent ventur uree is succ succes essf sful ul in the the host host coun countr try; y; lear learn n all all abou aboutt the the regulatory bodies both in the host country and home country; understand the customer’s changing tastes and attitude towards foreign goods and finally obtain revenue and make the business effective with right people. A majori majority ty of the multin multinati ationa onall corpor corporati ations ons and large large busine business ss houses houses appoint a team of experts who are specialists in economies, political science, soci sociol olog ogy, y, indu indust stri rial al psyc psycho holo logy gy and and poli policy cy matt matter ers, s, to advi advice ce the the management on its strategic decisions. These experts are called r isk analysts. Prior to entry or investing millions of dollars, the experts gather all the relevant information about the country and interpret those facts to facilitate the company. By such risk analysis, companies can safeguard themselves from future dangers. The major risks are: 1. Political 2. Economic 3. Exchange 4. Socio culture 5. Financial 6. Legal 7. Technological
8. Competitive 9. Infrastructural and 10. Labour. An organization can overcome the effects of all the risks by taking into account the different environmental factors. Since the home environment is known, one can understand and overcome the the pitf pitfal alls ls in the the even eventt that that any any acti action on goes goes wron wrong. g. The The inte intern rnat atio iona nall business related environments vary from continent, country to country and even from region region to region. region. A detailed detailed and comprehensive comprehensive analysis analysis of such fast changing environment is essential for formulating business strategies. Even well known companies with financial power, advance technology and an efficient management team have failed in other countries. Examples are the the Enro Enron n proj projec ectt whic which h did did not not take take off in Indi India; a; Ameri America can n styl stylee of managing a sales force which never worked for Procter and Gamble in Japan; the multilayer marketing technique of Amway, which did not work in Sout South h Kore Koreaa and and Kent Kentuc ucky ky Frie Fried d Chic Chicke ken n (KFC (KFC)) and and McDo McDona nald ld’s ’s hamburgers, which failed in Brazil and Tashkent respectively. Thus, it is important for a company to have an international team to design strategies to suit varying environments of different countries. In this chapter we discuss the environmental factors relevant to international bus busin ines ess. s. The The econ econom omic ic envi enviro ronm nmen ent, t, poli politi tica call envi environ ronme ment nt,, cult cultur ural al environment, technological environment, legal environment and competitive enviro environme nment nt play play a vital vital role role in determ determini ining ng an intern internati ationa onall busine business ss operation. Certain environments are quite conducive to a company at the time time of entr entry y and and late laterr on they they may may pose pose majo majorr chal challe leng nges es.. Arge Argent ntin inaa attr attrac acte ted d huge huge inve invest stme ment ntss befo before re 2000 2000.. Afte Afterr 2002 2002,, they they beca became me detrim detriment ental al to innume innumerab rable le organi organizat zation ions. s. Hence Hence enviro environme nmenta ntall factor factorss coul could d be stim stimul ulan antt or detri detrime ment ntal al.. If it is stimu stimula lant nt,, the the busi busine ness ss will will flourish. But if it is detrimental, then the company has to be cautious.
ECONOMIC ENVIRONMENT: ENVIRONMENT: The economic environment can be classified into three categories: a) Econom Economy y in the home home count country ry b) Econom Economy y in the the host host countr country y c) Econom Economy y at a globa globall level level..
a) Home Home coun country try Econom Economy y
Since 1940, hundreds of MNCs from the USA have ventured abroad, with the support of their home country. After 1990, many Indian companies star starte ted d vent ventur urin ing g into into subsub-Sa Saha hara ran n Afric Africa, a, Sout South h East East Asia Asia and and Lati Latin n America due to the liberal policies adopted in India. In order to encourage the business community to venture overseas, it is necessary for a country to have liberal economic and trade policies.
1. Ec Econ onom omic ic pol polic icie iess
The country’s economic policies are formulated and the targets are fixed looking at business opportunities in other countries. It is made simpler for businessmen to invest or set up units abroad. 2. Trade and commercial policies:
The trade policy is announced by the ministry of commerce commer ce and industry and the target for rational foreign trade is fixed. All the promotional bodies are geared geared to achiev achievee the target. target. Many Many incent incentive ivess are held held out to overse overseas as companies, so that they set up operations in the home country through local partners, Indonesia, Thailand and Brazil extend all facilities in their home country to promote their nationals . 3. Promotion and regulatory measures :
The home country should take the opportunity to do business abroad. It can do this by being proactive, encouraging persons to take risks and extending fiscal and promotional support. If restrictions are imposed and bureaucratic hurdles are encountered at all stages the business community will not think of taking any risks. By removing exchange control restrictions and draconian codes of business and providing an environment conductive to foreign trade, small countries like Malta, Cyprus and Mauritius have today transformed themselves into foreign trade economies.
b) Host Host Countr Country y Economy Economy..
When a firm from one country enters any other country, the following major criteria are taken into account: 1. Size Size of the the mark market et Many multinational firms are thinking of entering India, China, Brazil and Indonesia, because of their large potential markets. Coca cola, Pepsi, Hewlett Packard and Samsung are looking to India as a future destination keeping in mind the size of population which represents the size of the market. 2. Gross Gross Domes Domestic tic Prod Product uct (GDP) (GDP) GDP is an indicator o the health of the economy; it also determines pr capita income. A country with a high GDP is an attractive destination for for any any inte intern rnat atio iona nall busi busine ness ssma man. n. If a cons consta tant nt grow growth th rate rate is maintained, such a country would always be a magnet for investors. Thailand, Malaysia and Indonesia were attractive during the 1990’s due to a very high growth rate in GDP, until the currency crisis affected their economies. 3. Indu Indust stri rial aliz izat atio ion n Many firms in the developing world were interested in entering into Europe or the USA. The recent trend amongst companies in India is towards Latin America specially, Brazil, Argentina, Chile. This is due to the the indu indust stri rial aliz izat atio ion n prog program ram,, whic which h is taki taking ng plac placee in thes thesee countries. It is obvious that industrialization brings about prosperity and affluence. 4. Banking Banking is the only channel through which remittances take place, and and henc hencee is a majo majorr infra infrast stru ruct cture ure for for inte interna rnati tion onal al busi busine ness ss.. European, American and far East economies have highly effective ban bank king ing syst system ems. s. Sub Sub –Sah –Sahaaran ran Afric fricaa and and comm common onwe weal alth th Inde Indepe pend nden entt stat states es (CIS (CIS)) are are not not able able to prov provid idee good good bank bankin ing g services to the international business community. Thus, a firm which enters Africa or the CIS countries has to necessarily depend on other countries for banking services.
5. Purc Purcha hasi sing ng Powe Power r
Another major determining factor for any international business unit is whether the people can afford to buy for a product is low. In other countries like Saudi Arabia, both the income and willingness to pay for the product are high. In the Scandinavian countries the per capita income is very high and they are ready to pay a premium price for highly sophisticated items. However, the low population is a limiting factor. 6. Fore Foreig ign n Exch Exchan ange ge Anot Anothe herr dete determi rmini ning ng fact factor or in inte intern rnat atio iona nall busi busine ness ss is whet whethe her r foreign exchange facilities are available transactions. Although more than 70% of the countries in the world do not have foreign exchange reserves, the majority of them are becoming liberal in transacting foreign exchange as a long term strategy for their future economic deve develo lopm pmen ent. t. Agai Agains nstt this this,, some some coun countr trie iess with with surp surplu luss fore foreig ign n exchange reserves do not permit free movement of the currencies. Such Such coun countr trie iess that that have have restri restrict ctio ions ns in repat repatri riat atio ion n of fore foreig ign n exch exchan ange ge will will not not be attr attrac acti tive ve to inte intern rnat atio iona nall busi busine ness ss firms firms.. Therefo Therefore, re, countr countries ies with with suffic sufficien ientt foreign foreign exchan exchange ge reserv reserves, es, a libe libera rall poli policy cy on repa repatri triat atio ion n and and whic which h have have a dema demand nd for for the the products products and services services are an ideal destination destination for any company to do international business. 7. Inco Income me Leve Levels ls Eco Economi nomiees are cla classif ssifie ied d into into low income come and and high high inco income me econom economies ies.. Indust Industria rializ lized ed nation nationss are high high income income econom economies ies and enjo enjoy y a high high per per capi capita ta inco income me.. Comp Compan anie iess manu manufa fact ctur urin ing g or marketing premium quality or high technology products have an easy entry entry into into such such adva advanc nced ed coun countri tries es with with the the prop proper er strat strateg egie ies. s. Developing countries, which are the low income economies, are price sensitive. Many of them are under pressure from high population, unemployment and lack the vision to industrialize fast. Still they need only primary goods and rated one amongst less developed countries. Diffe Differen rence cess in the the inco income me leve levels ls may may limi limitt the the invo involv lvem emen entt and and invest investmen ments. ts. Sometim Sometimes, es, in a densel densely y popula populated ted count country, ry, a small small percentage of the population can afford to buy premium products. Sinc Sincee this this does does not not repr repres esen entt the the purc purcha hasi sing ng powe powerr of the the whol wholee country, the revenue is minimum. 8. Econ Econom omic ic div divers ersit ity y
In the the same same coun countr try, y, a few few urba urban n cent centers ers may may offe offerr outs outsta tand ndin ing g business opportunities, while in remaining areas there is no demand at all. all. Nair Nairob obii I Keny Kenya, a, Lusa Lusaka ka in Zamb Zambia ia,, Joha Johann nnes esbu burg rg in Sout South h Africa, Sao Paulo in Brazil and Casablanca in Morocco are cities with the the high highes estt purch purchas asin ing g powe powerr and and dema demand nd for for refri refrige gera rato tors rs,, air air conditioners, TV sets etc. However in other parts of the country, there is hardly any opportunity to do business. In Madagascar, despite the fact that it is a highly resourceful country, one can not get even the bas basic ic item for for surv surviv ivaal, exce xcept in two two citie ities, s, Tama Tamattave ave and and Antamarino.
c) ECONOM ECONOMY Y AT A GOBA GOBAL L LEVEL LEVEL
Besides the home country and the Host country, there are certain other fact factor ors, s, whic which h can can infl influe uenc ncee the the patt pattern ern of inte intern rnat atio iona nall busi busine ness ss.. Organi Organizat zation ionss such such as the World World Trade Trade Organi Organizat zation ion,, World World Bank, Bank, Inte Intern rnat atio iona nall Mone Moneta tary ry Fund Fund,, Asia Asian n deve develo lopm pmen entt bank bank and and the the orga organi niza zati tion on of petr petrol oleu eum m Expo Export rtin ing g coun countr trie iess (OPEC (OPEC)) can can affec affectt international business. The preferential treatment given to the members of NAFTA, ASEAN, the European Union and COMESA can have a negative impact on the trade between outside cartels and non-members. When shipments shipments move from one destination destination to another, another, there are transit ports which charge huge sums as surcharge or transit charges.
SOCIAL ENVIRONMENT
The social social enviro environme nment nt encomp encompass assing ing religi religious ous aspect aspects, s, langua language, ge, customs, traditions and beliefs, influences buying consumption habits. Many companies face failure in foreign countries, due to their inability to understand the socio cultural environment. For example whenever any comp compan any y esta establ blis ishe hess busi busine ness ss in some some Afric African an coun countr trie ies, s, the the loca locall population expects that many jobs will open up for them. Very few countries perceive tat they may be exploited.
Due to the entry of foreign firms the economic and hence the social environment of an area can completely change. An example is southern China, which has completely changed to an affluent society due to the fact that almost 2000 companies get their products pr oducts manufactured in coastal south China. 1. Nati Nation onal al Tas Taste te In Thai Thaila land nd,, Peop People le pref prefer er blac black k sham shampo poo; o; Nest Nestle le brew brewss differe different nt variet varieties ies of instan instantt coffee coffee becaus becausee people people in those those countries have different tastes, uncommon in other countries. Green is the favorite color of all the Arab countries; Red is still wide widely ly used used in Russ Russia ia,, in bann banner ers, s, post poster ers, s, and and hoar hoardi ding ngss although communism is in no way relevant to modern Russia. 2. Language Cross culture and cross border operations call for necessary lang langua uage ge skil skills ls,, e.g. e.g. Sout South h Kore Korean anss have have lear learnt nt Indi Indian an languages to operate in India. One can see this in Hyundai or LG factories in India. Companies also have to change their brand names and slogans in different countries. In Japan, General Motor’s slogan “body by fisher” means “corpse by fisher”, and Pepsi Cola slogan “come alive” means come out of the grave. Prior to promoting the brand, one has to take into account the sociocult cultur ural al bac backgro kgrou und of a spe specifi cificc nati nation on and and diffe iffere ren nt interpretations of a name in the local language. 3. Valu Values es and and bel belie iefs fs It is also important for f or companies to understand the significance of diffe differe rent nt desi design gnss and and colo colors rs in diffe differen rentt coun countri tries es.. For For exam exampl ple, e, blue blue is perc percei eive ved d as femi femini nine ne in Holl Hollan and d and and masc mascul ulin inee in wide widen. n. Gree Green n is favo favorit ritee colo colorr in the the Musl Muslim im world, but is associated with illness in Malaysia although it is a Muslim country. White indicated death in china and Korea but it is the color of bridal dresses in Europe. Red is associated with danger in many countries but it is a favorite in Russia. Another example is ‘swastika’, which is considered sacred in India, but has completely different connotations in the west.
4. Demo emograp graph hy A number of demographic factors such as age, sex ratio, family size and occupation influence the business of many companies. Differe Different nt compan companies ies concen concentrat tratee on differe different nt segmen segments. ts. For example, Barbie generates huge revenues through the children’s segment of affluent countries. 5. Lite Litera racy cy rate rate Countries with a high literacy rate experience a better standard of living. Here the need is for standardizes goods, supported by technical services. For a country with an educated population, the amount of training required for the staff will be far less than in the case of the country which has a low literacy rate. This is an impo import rtan antt fact factor or,, as it influ influen ence cess the the cost cost incu incurr rred ed.. An argument holds in the case of educating the consumer about the products manufactured. 6. Fema Female le Workf Workfor orce ce The most spectacular change that has taken place in the current era is the empowerment of women throughout the world. In Chin China, a, Indo Indone nesi sia, a, Russ Russia ia and and Thai Thaila land nd,, wome women n are are majo major r contributors to the GDP. With economic independency, women no longer have to depend on men to make decisions about what to buy; they can make their own decisions about whether to pur purch chas asee any any cons consum umer er prod produc uctt or dura durabl ble. e. Dule Dulex, x, a well well know known n bran brand d of pain paintt in Euro Europe pe was was prom promot oted ed thro throug ugh h campaigns directed at women, because it was felt that women have have an aest aesthe heti ticc tast tastee for for colo colors rs in the the hous househ ehol old d pain paintt segment. The performance of the i-pod of Apple hit the roof in terms terms of reve revenu nuee gene generat ratio ion n due due to fema female le cust custom omers ers.. The The female work force is very strong in various sectors in many countries. Examples are: Indian women in IT enabled services and handicrafts, Chinese women in the soft toys and ceramics and Indonesian women in garments and paper work, who have brought great success to their countries.
7. Double Double Income Income Famili Families es As the household income increases, the demand for the number of products increases proportionately. This is specially true for
packaged food items, electronic gadgets, household appliances, heal health th equi equipm pmen ent, t, Japa Japane nese se ente entert rtai ainm nmen entt elec electro troni nics cs and and French perfumes dominate in the whole of Europe and North Amer Americ ica. a. Pizz Pizzaa Expr Expres ess, s, McDo McDona nald ld and and Kent Kentuc ucky ky Frie Fried d Chic Chicke ken n inva invari riab ably ly rule rule the the hous househ ehol olds ds of doub double le inco income me families throughout the world. 8. Impu Impuls lsee buyi buying ng Bene Benefi fitt orie orient nted ed buyi buying ng is taki taking ng plac placee every everywh where ere.. PrePre planned shopping and scheduled purchases are gradually going away. Throughout the world, people need instant items. They see, see, ask ask and and buy. buy. It is a majo majorr chal challe leng ngee to inte intern rnat atio iona nall businessmen to provide benefits to lure impulse buying.
POLITICAL ENVIRONMENT.
The political environment in international business operates in different dimensions: 1. The home country country politi political cal envir environmen onment; t; 2. The host host count country ry politica politicall environme environment, nt, and and 3. The globa globall politic political al environ environmen ment. t. 1. Home Home Country Country Politi Political cal Enviro Environme nment nt In an ideal world, one would not normally expect domestic policies to affect the firm’s international activities. Some countries like the USA encourage their organization to establish activities abroad, especially in their core competency fields. Japan encouraged their electronics and auto companies to spread their activities outside Japan. Domestic firms that continue to invest and manufacture abroad while ignoring thei theirr home ome cou country ntry are are often ften accu ccused sed of creat reatin ing g domes omesttic unemployment problems and may be subject to political pressure, from the government. Indian government encourages business houses to go and perform outside in steel, healthcare, mining, textile and automobile. 2. Host Host Country Country Politi Political cal Enviro Environme nment nt If the actu actuaal bene enefit fits of fore foreig ign n firm firmss are are shar shareed in terms rms of empl employ oyme ment nt,, taxe taxess and and soci social al secu securi rity ty with with the the loca locals ls,, poli politi tica call
atmosphere tends to be hospitable. If it is felt that the foreign firms contribute nothing to the well being of the nation, it may produce a hostile reaction from the business community and labor organization, which in turn puts pressure on the government. In extreme cases, this may lead to either political turmoil or the appropriation of the assets of the foreign firm. Mc Donald had to face a change in the ruling party, in Israel. When the National Religious Party (NRP) came into the power it demand demanded ed that that McDona McDonald ld should should change change its practi practices ces or be shut shut down. 3. Global Global Poli Politic tical al Envir Environm onment ent This may be describes describes as the combined combined politics politics of the home country, the host country and the other countries in the world. Multilateral agreements between international organizations, such as GAAT, the UNO and the Commonwealth, may constitute an impediment to free trade as well as to the nature and scope of the operation of international firms. Embargos, Cartels, free trade pacts and and cust custom oms’ s’ unio unions ns allo allow w a few few nati nation onss to enjo enjoy y comp compet etit itiv ivee advant advantage ages, s, whilst whilst others others lose lose their their busine business ss prospe prospects cts.. Howeve However, r, there may also be advantages, e.g., the commonwealth generalizes System Systemss of Prefere Preference ncess (CWGSP (CWGSP)) offers offers good good opport opportuni unitie tiess to all commonwealth countries to supply and receive goods and services at concessio concessional nal rates, which ultimately ultimately give them a competitiv competitivee edge over non-commonwealth nations. Global politics can influence business in vastly varying ways. For example the economic embargo on Iraq by the Security Council of the United Nations in 1991 meant that conducting trade with that country was illegal for all international firma. Another example is Chin Chinaa Order rderin ing g Micr Micros osof oftt to stop stop sell sellin ing. g. “W “Win indo dows ws 95” 95” as it cont contai aine ned d poli politi tica call lly y offen offensi sive ve mate materia riall incl includ udin ing g phras phrases es like like “communist bandits”. Microsoft agreed to change the material for reentry.
CULTURAL ENVIRONMENT ENVIRONMENT
The cultural environment for international business refers to the set set of facto factors rs whic which h shap shapee the the materi material al and and psyc psycho holo logi gica call development of a nation and represents the primary influence on individual lifestyle, attitude, pre-deposition and behavior as cons consu umers mers in the mark market et.. The The most most impo mporta rtant task task of intern internati ationa onall busine business ss is to identi identify fy releva relevant nt simila similarit rities ies and differences among countries, and means and methods to match the the orga organi niza zati tion on’s ’s cult cultur uree with with that that of the the coun countr try y of its its operat operation ion.. For exampl example, e, when when Toshib Toshibaa gained gained 100 percen percentt ownership of Rank-Toshiba in the Plymouth all the managers in charge learnt the British Style of working. Working it is the operation of a business or dealing with cust custom omer erss one can cannot not over overllook ook cult cultu ural ral elem elemen ents ts.. The The perfor performan mance ce of a compan company y in the the intern internati ationa onall arena arena partly partly depends on how well the strategic elements fit into the culture of the host country. country. Culture may be described described as the totality totality of the the comp comple lex x and and learn learned ed beha behavi vior or of memb member erss of a give given n society. Elements of culture include beliefs, art, morale, code of cond condu uct and and custo ustoms ms.. Cult ulture ure has the foll follow owin ing g thre threee characteristics: - It is learned : acquired by people over time through their membership in a group that transmits culture from generation to generation. interrela elated ted : i.e. i.e. one one aspe aspect ct of the the cult cultur uree is - It is interr connected with another part, e.g. religion and marriage, or business and social status. - It is shared : i.e. tenets of a culture extend to other members of the group.
Culture is perhaps one of the most important determinants of human behavior. Food habits, social class, the family system, community units and other cultural and sub-cultural elements influence the process of decision making in day to day dealings and the buying habits of customers. Thus, there is a need for cross-cultural understanding bec becau ause se of the the sign signif ific ican antt diffe differen rence cess in atti attitu tude de,, beli belief ef,, motiva motivatio tion, n, percep perceptio tion n and life life styles styles betwee between n nation nations. s. For exam exampl ple, e, bran brande ded d prod produc ucts ts will will move move fast fast in Europ Europee and and
America, but Africans perceive branded products as being very expensive. The Influence Of Culture On International Business
1. The The Util Utilit ity y valu valuee of a prod produc uctt may may diff differ er cons consid idera erabl bly y from from country to country because of differences in beliefs, values and life lifest styl yles es.. Fast Fast food foods, s, such such as Kent Kentuc ucky ky Frie Fried d Chic Chicke ken, n, McDo McDona nald lds, s, hamb hambur urge gers rs and and pizz pizzas as are are more more popu popula larr in mode modern rn soci societ etie iess than than in tradi traditi tion onal al soci societ etie ies. s. Simi Simila larl rly, y, branding and packaging are very susceptible to cultural bias. 2. Prod Produc uctts are are lau launch nched in mark market etss on the the basi basiss of eithe ither r perceived or real utility value. Products from certain parts of the worl world d such such as We West ster ern n Euro Europe pe,, Japa Japan n and and Unit United ed stat states es command premium prices in developing countries because it is felt that they are of better quality than locally manufactures products. They have a higher value. 3. Cultur Culturee is perhaps perhaps the most most powerf powerful ul influenc influencee in determin determining ing the acceptability of advertising copy, design and other elements in various countries. Advertisements released in France may not be acceptable in the United Kingdom. Many advertisements acceptable to the other pats of the world will not be accepted in the Saudi Arabia. Liquor advertisements are prohibited in many countries. 4. Holi Holida days ys in diff differ eren entt coun countr trie iess vary vary on reli religi giou ouss grou ground nds. s. Friday is a holiday in the whole of gulf region. In China, the offices and factories are closed for a week for the New Year celebrations. For companies having firms in different countries, it is ther theref efor oree impo imposs ssib ible le to impo impose se the the rule rule of comm common on business practices everywhere, as productivity would be very low during festive days. Any strict implementation of company policy will have direct repercussions, which may even lead to closure of the business in different countries. 5. Loca Locall norm normss and and prac practi tice cess may may affe affect ct cert certai ain n dist distri ribu buti tion on strate strategie gies. s. Eating Eating in public public places places during during Ramada Ramadan n days days is prohi prohibit bited ed in Muslim Muslim countr countries ies.. Therefo Therefore, re, eateri eateries es are not open opened ed duri during ng the the day day at this this time time.. In Spai Spain, n, mail mail orde order r shopping shopping is very popular, popular, whereas whereas in the US and Europe chain stores are preferred, and door-to-door delivery is common in many Scandinavian countries. Shopping malls are coming up in
urban India faster than in any other country in the world. Still smal smalll trad tradit itio iona nall shop shopss near near home hometo town wn are are perc percei eive ved d as trustworthy suppliers when the customers need groceries.
TECHNOLOGY ENVIRONMENT
Tech Techno nolo logy gy and and its its appl applic icat atio ions ns are are key key fact factor orss in dete determ rmin inin ing g the the international competitiveness of a firm in conducting international business. Multimedia using Pentium 4 is common in advanced countries whereas it will take at least another five years to introduce such products in Africa. Leadership in technology is achieved and maintained through a consistent pro progr gram am of inte intens nsiv ivee rese resear arch ch and and deve develo lopm pmen ent, t, whic which h can can be very very exp expens ensive. ive. Only Only tho those comp compan anie iess that that are able ble to mai maintai ntain n the their technological activities will remain competitive. A Company may invest millions of dollars in R&D, despite the fact that the projected revenue in the home country would be very low. However other countries will generate huge revenues over a period of time. The Hoffkins, Bio Rad, Genen technology and Pfizer are examples of institutions and firms, who are investing huge sums of money in R&D, because they are sure of their returns on their investments over a period of time. In the late 20th century, Asian tigers, Japan, South Korea, Hong Kong, Singapore and Taiw Taiwan an achi achiev eved ed a mira miracu culo lous us succ succes esss due due to thei theirr inve invest stme ment nt and and implementation of the technology policies in specific sectors. Few countries, such as Japan for electronic equipment, Germany for medical equipment, and the USA for pharmaceuticals have remained leaders in their fields for decades. Other countries have remained behind them. The time between the innovation and its adoption and its adoption may vary from country to country. Innovating countries are few. Following countries are many. Technology leader’s encash on skimming pricing strategies, wherein the the margi margins ns are are huge huge.. Eriks Eriksso son, n, Noki Nokia, a, Moto Motorol rolaa and and LG have have been been succes successfu sfull since since they they manufa manufactu ctured red cell cell phones phones.. Curren Currently tly,, the busine business ss opportunities exist in every country in the world. The people around the world are adaptable to the technology too. While technology innovation is adaptable to the masses, the companies involved in such business prosper. Today Today Hewlet Hewlettt Packar Packard, d, Fujits Fujitsn, n, Apple, Apple, Samsung Samsung and Lenova Lenova compet competee against each other by educating the workers on using their laptops and launch their new versions everywhere.
LEGAL ENVIRONMENT :
This relates to the laws and regulations governing the conduct of business activities in the country. Before entering any country, firms avail of the services of local legal firms to understand business interpretations pertaining to labor legislations, taxes, environment, pollution, investment, distribution, cont contrac racts ts,, logi logist stic icss etc. etc. The The inte intern rnat atio iona nall lega legall envi enviro ronm nmen entt has has thre threee aspects: a) Home Home coun country try laws laws b) b) Host Host coun countr try y laws laws c) Inte Intern rnat atio iona nall laws. laws. a) Home Home Count Country ry Laws Laws These deal with two important issues: i) Cond Condu uct of the the firm firm in the the do domest mestic ic terr territ ito ory. ry. ii) Tra Trade with th the other co countrie ries
For international operators, the home country laws are not stringent. They are more of facilitating or regulating in nature, but not controlling in normal practice. b) Host Host count country ry laws laws These include investment regulations, tariffs and duties, anti-dumping regulations and protection of local industries from unfair competition from industrialized countries. Tariffs and duties are used to discourage imports of non-essential products in order to conserve foreign exchange and maintain a favorable balance of trade and to generate revenue. Seven advanced countries impose laws against developing countries. Super 301 against Indian nylon skirts imposed by USA as inflammable fabric and ban on Indian sea food by Europe are the examples. c) Intern Internati ationa onall Laws Laws These comprise treaties, conventions and agreement between nations, and have basically the same standing as laws. They are particularly in areas relating to patents and trademark protection and privacy laws. One has to understand the broad provisions of UN resolutions, and multilateral trade agreements such as the WTO. Disputes are solved by differe different nt means. means. Food Food and drug drug admini administr strati ation, on, health health regula regulatio tion, n, registratio registration n formalities formalities are judiciousl judiciously y implemente implemented d in internatio international nal
business business operations. operations. Investment Investment restriction restrictionss in some sector, sector, promotion promotion in othe others rs and and the the role role of regu regula lato tory ry auth author orit itie iess are are part part of lega legall environment. For example, Nigerian government nationalized the assets of British petroleum, when it was revealed that the company as selling Nigerian crude oil to South Africa, despite an embargo. COMPETITIVE ENVIRONMENT:
Competition is a threat imposed by an environment, which may effect or hamper or challenge the operation of an international business firm. Competition either could be from the firm’s home country or host country or third country. Some times product related competition may crop crop up thro throug ugh h subs substi titu tute tess or low low cost cost prod produc ucti tion on proc proces esss or technology or cost reduction through economies of scale. The current international business operation has to encounter competition as various levels levels such such as entry, entry, operat operation ion,, produc productio tion, n, admini administr strati ation, on, human human resource, resource, technical technical resource, resource, and financial financial resource. Distributi Distribution on and logistics. Motorola had to face the face the competition from Nokia, soon Nok Nokia ia conc concen entra trate ted d in fast fast grow growin ing g mark market etss of India India and and Chin Chinaa resulting the follower became leader in the world. Cuba based White Spir Spirit it Comp Compan any; y; Hava Havana na club club ente entere red d very very late late in the the fiel field d and and surpassed the erstwhile leader like Smirnoff. Tusker and Phoenix – the major beer brands in COMESA coun countr trie iess (Com (Commo mon n Mark Market et for for East East and and Sout South h Afric Africa) a) have have been been overtaken by King Fisher after UB group took over National Breweries of South Africa. For international companies, facing competition is a way of life. According to them, competition keeps their mind alert, quality war is inev inevit itab able le.. Beyo Beyond nd theo theoret retic ical al mode models ls,, they they beli believ evee in lear learni ning ng compet competiti itiven veness ess in streets streets,, countr countries ies and produc productio tion n center centers. s. They They consolidat consolidatee competitiv competitivee advantage advantagess and succeed. succeed. Hyundai Hyundai motors motors in India, Honda motors in Europe and Tata Motors in Africa withstood all the competitive forces and succeeded.
FACTORS INFLUENCING INTERNATIONAL BUSINESS
ENTITY
ENVIRONMENT
ACTIVITIES
END RESULT
Economic
Manufacturing Political INTERNATIONAL FIRM
Social
Investment International Destinations
Cultural
Legal
Trading
Technology
Competitive
Marketing
