Factors and Variables Involved in International Business13/03/2020
International business refers to all commercial activities such as trade of goods, services, technology, knowledge and capital across national borders. The cross border transactions take place between individuals, business firms and government agencies. Thus, international business refers to cross border transactions of goods and services taking place between two or more countries. Also, International business occurs in different forms:
- Cross border transactions of goods and services from one country to another
- Contractual agreements to use products, services and processes of other nations
- Operating sales, manufacturing, research and development activities in foreign markets.
External Factor influences on International Business
Various companies are involved in transacting their goods, services and capital across the national borders and are affected by number of factors. various restrictions are also imposed on companies that are transacting their business at international level. various internal and external factors directly impact the working of these business firms. Various external environment factors directly affecting the working of large MNCs include social conditions of economy, political and legal factors, etc. However, internal factors can be controlled by the management team of companies by taking various strategic initiatives.
Following is the detail discussion on various external factors that are affecting the working of international corporations:
(i) Political factors
Various political factors affect the international factors. Political factors such as changes in tax rates, policies and actions of government, political stability of country, foreign trade regulations etc. affects the working of an international business firm. Lack of political stability in the country directly impacts the operations of business firm. Also, various tax policies and government initiatives sometimes hinders the expansion of business in other countries. Thus, effective political environment of business influences the growth of business firm.
(ii) Economic factors
Economic factors relates to the economic system of the country where the firm has its operations. Various econocmical factors such as inflation rate, interest rate, income distribution, employment level, allocation of government budget, etc., directly impacts the operations of business firm. Various economic factors such as purchasing power of customers also determines the demand of various products and services.
(iii) Legal factors
Legal factors relate to the legal environment of the country in which firm operates. Different laws prevail in different countries and international business firms have to abide by the laws of each country. Laws relating to age and disability discrimination, wage rates, employment and environment laws affects the working of business firms. Along with this, various international lending agencies affects the legal culture and working policies of business firm
(iv) Social factors
Social factors such as education, awareness and trends and status of people in the society affects the consumer behavior to purchase various goods and services. Also, Social environment and culture such as customs, lifestyles and values differs from country to country which further directly impacts the international business.
(v) Environmental factors
Environment factors such as weather, climate change, temperature etc. affects the business firm and the demand pattern of various goods and services. increasing environment awareness has made this external environment factor a significant issue to be considered by business firms. Move towards environment friendly products and services also has affected the demand pattern of various goods and services.
(vi) Technical factors
Technological changes in the industry has both positive and negative impacts on the working of business firms. Technological changes and development of automated work processes helps in increasing the efficiency of business processes. However, technological changes also threaten the demand of various products and services in the industry.
Internal factor influences on international business
(i) Impact of customers on business
Customers are important micro environment factor of business that impacts the operations of business organization. Customers have gained lot of importance in 21st century. Business firms in current times cannot successfully run a business without fulfillment of needs and wants of customers. Also, customer preferences changes at regular pace which influences the working of business firms. Thus, customer focus and engagement have become key factor for business firm to be considered while determining the type of products and services to be offered to customers. Customer engagement also influences the competitive position of business firm. For instance, Woolworths has taken various initiatives to provide convenient services to customer. Woolworths also has developed online portal to provide convenient shopping facility to customers. Various store innovation has also been done by Woolworths to ensure that customer do not face any difficulty in shopping. Woolworths also ensures that customers get fresh fruits and vegetables. Along with this, Woolworths is known for providing superior services to customers at reasonable prices. All these initiatives have helped Woolworths to achieve competitive position in industry. In addition to this, Woolworths also has adopted number of rapid prototyping techniques to try new ideas with customers and to gain their feedback from customers regarding various products and services.
(ii) Suppliers factors affecting business
Suppliers provides various raw materials, technology, human resources and other components to the company. international business firms operate on large scale and procure resources and other supplies from number of suppliers. It is must for international business firm to have well managed supply chain. Business firms should remain in touch with various suppliers to reduce their operational cost and to ensure that various raw materials required in business are readily available. However, growing concern for quality products and need for sustainable and ethical products has increased the bargaining power of number of suppliers. Location, price charged by suppliers, quality of products provided by suppliers etc. affects the selection of suppliers by the business firm. Also, price charged by various suppliers directly impacts the cost structure of various goods produced by the business organization. For instance, Woolworths has developed effective supply chain management system by developing effective relations with number of suppliers and procuring timely supplies from suppliers. Various products of suppliers such as fresh fruits and vegetables are directly stored in the retail stores of the company. Thus, Woolworths ensures that fresh and quality produce is procured from suppliers.
(iii) Competitors factors affecting business
Various competitive factors also affect the working of company. Large number of competitors exist in the industry and initiatives undertaken by competitors directly influences the working of company. Market share of the competitors also affects the profitability of business firm. However, larger competition in the market signified huge demand for the product in the market. Products and services provided by competitors also creates new demand trends in the industry by creating demand for new products and services which further reduces the demand of firm products and services in the industry. Rapid change in the needs of customers is also the result of actions taken by competitors. This further influences the business organization to bring some innovation and develop products according to the needs of customers. Thus, it is must for business firms to provide differentiated products to customers to gain larger market share. For instance, Woolworths has reduced its prices as a result of reduced prices of ALDI and coles stores. Also, Woolworths also has taken number of initiatives to move toward more uniform pricing policies.
(iv) Industry rivalry affecting business
Rivalry among the existing competitors also affects the operations of business firms. Behavior of competitors affects the operations of business organization. Competitive rivalry also pressurizes business firms to offer quality produce to customers at reasonable prices. Also, competitive rivalry influences business firms to increase their spending on product and service innovation. For instance, huge competition exists in the retail industry and various dominating firms such as Coles supermarkets, Wes farmers, ALDI, etc. are competing against one another to achieve higher market share in the retail industry.