International Business Environment, Importance, Factors

International Business Environment In the context of a business firm, environment can be defined as various external actors and forces that surround the firm and influence its decisions and operations. The two major characteristics of the environment as pointed out by this definition are: these actors and forces are external to the firm these are essentially uncontrollable. The firm can do little to change them.

The International Business Environment concentration provides a “macro” view of markets and institutions in the global economy. It will prepare students for careers involving international market analysis such as international commercial and investment banking, portfolio analysis and risk assessment, new market development, international business consulting, and international business law. The foundational courses focus on an understanding of global markets and institutions. The concentration will allow the student to combine courses in broader areas of economic development, regional business environment, and/or international law, management, marketing, trade, and finance. The student will be encouraged to combine the core courses with supplemental coursework in related international subjects such as language, history, politics, and culture.

Exports boost the economic development of a country, reduce poverty and raise the standard of living. The world’s strongest economies are heavily involved in international trade and have the highest living standards, according to the Operation for Economic Co-operation and Development (OECD).

Countries like Switzerland, Germany, Japan and the Scandinavian countries have high volumes of imports and exports relative to their gross domestic product and offer high standards of living. Nations with lower ratios of international trade, such as Greece, Italy, Spain and Portugal, face serious economic problems and challenges to their living standards. Even with low wages, less developed countries can use this advantage to create jobs related to exports that add currency to their economy and improve their living conditions.

Importance of the International Business Environment

1. Exports Increase Sales

Exporting opens new markets for a company to increase its sales. Economies rise and fall, and a company that has a good export market is in a better position to weather an economic downturn.

Furthermore, businesses that export are less likely to fail. It’s not only the exporting companies that increase sales; the companies that supply materials to the exporters also see their revenues go up, leading to more jobs.

2. Exports Create Jobs

A company that increases its exports needs to hire more people to handle the higher workload. Businesses that export have a job growth 2 to 4 percent higher than companies that don’t; these export-related jobs pay about 16 percent more than jobs in companies with fewer exports. The workers in these export-related jobs spend their earnings in the local economy, leading to a demand for other products and creating more jobs.

3. Imports Benefit Consumers

Imported products result in lower prices and expand the number of product choices for consumers. Lower prices have a significant effect, particularly for modest and low-income households. Studies show that lower import prices save the average American family of four around $10,000 per year.

Besides lower prices, imports give consumers a wider choice of products with better quality. As a result, domestic manufacturers are forced to lower their prices and increase product lines to meet the competition from imports. Even further, domestic vendors may have to import more components of their products to stay price competitive.

4. Improved International Relations

International business removes rivalry between different countries and promotes international peace and harmony. Mutual trade creates a dependence on each other, improves confidence and fosters good faith.

A good example of co-dependency of nations is the relationship between the United States and China. Even though these countries have significant political differences, they try to get along because of the huge amount of trade between them.

Their relationship evolved and changed a lot over the past decades. Not too long ago, it was characterized by mutual tolerance, intensifying diplomacy and bilateral economic relationships. This was a win-win for both parties.

In July 2016, more than 800 hundred Chinese products became subject to a 25 percent import tax. The new tariff policy is expected to affect U.S.-China relations. Financial experts believe that there’s no going back to how things were.

A policy of a free international trade environment strengthens the economies of all countries. The competition from imports and exports leads to lower prices, better quality of products, wider selections and improved standards of living. While international trade may lead to the loss of some jobs, it has a stronger synergistic effect on the creation of new jobs and improved economic conditions.

Factors affecting International Business Environment

• Political Factors

Political stability, government policies, trade agreements, and diplomatic relations play a significant role in international business. For example, a politically stable country with business-friendly regulations encourages foreign investments, while political unrest or trade restrictions can deter business activities.

• Economic Factors

Economic conditions such as GDP growth, inflation, exchange rates, and interest rates impact international business. A strong economy provides a favorable market for goods and services, while economic instability or currency fluctuations can lead to challenges in pricing and profitability.

• Social Factors

Demographics, lifestyle preferences, education levels, and cultural norms shape consumer behavior and demand patterns. Understanding the social context is essential for businesses to tailor products and marketing strategies to meet local needs effectively.

• Technological Factors

Technological advancements, innovation, and the availability of infrastructure like the internet and communication systems affect how businesses operate internationally. Companies in technologically advanced countries may gain a competitive edge, while those in regions with limited technology may face challenges in scaling operations.

• Environmental Factors

Environmental sustainability, climate change, and the availability of natural resources significantly influence international business. Organizations must comply with international environmental standards and adopt sustainable practices to maintain their reputation and meet regulatory requirements.

• Legal Factors

Different countries have unique legal frameworks governing business activities, including labor laws, taxation, trade regulations, and intellectual property rights. Companies must navigate these legal landscapes carefully to avoid penalties and ensure smooth operations.

• Cultural Factors

Cultural differences, including language, traditions, and business etiquette, can impact communication, negotiation, and overall success in international markets. A lack of cultural sensitivity may result in misunderstandings or failure to build trust with stakeholders.

• Competitive Factors

The level of competition in foreign markets influences pricing, product positioning, and market entry strategies. Understanding local competitors and consumer loyalty is crucial for establishing a foothold and sustaining business growth.

Parties involved in International Business Environment

• Governments

Governments influence international business through policies, regulations, and treaties. They regulate trade through tariffs, quotas, and trade agreements. Governments also support businesses by providing export incentives, infrastructure, and diplomatic assistance.

• Multinational Corporations (MNCs)

MNCs are businesses that operate in multiple countries. They drive globalization by investing in foreign markets, creating employment, and transferring technology. MNCs influence international business dynamics through their scale, resources, and global reach.

• Exporters and Importers

These are businesses or individuals engaged in cross-border trade. Exporters sell goods and services to foreign markets, while importers purchase goods and services from abroad to meet domestic demand. They form the backbone of international trade.

• Financial Institutions

Banks, investment firms, and international financial organizations facilitate global trade and investment by providing financial products like trade credit, loans, and currency exchange services. Institutions such as the International Monetary Fund (IMF) and the World Bank play a crucial role in stabilizing economies and fostering development.

• International Organizations

Global institutions like the World Trade Organization (WTO), United Nations (UN), and regional bodies like the European Union (EU) create frameworks for international cooperation. These organizations establish rules for trade, resolve disputes, and promote economic integration.

• Logistics and Supply Chain Providers

Shipping companies, freight forwarders, and customs brokers facilitate the movement of goods across borders. They play a critical role in ensuring smooth and timely delivery, compliance with regulations, and cost-effective transportation.

• Consumers

End-users in international markets drive demand for goods and services. Their preferences, purchasing power, and cultural influences significantly impact business strategies and product offerings in global markets.

• Trade Associations and Chambers of Commerce

Organizations like the International Chamber of Commerce (ICC) and regional trade associations advocate for businesses, provide market insights, and facilitate networking. They also represent business interests in policymaking and trade negotiations.

• Non-Governmental Organizations (NGOs)

NGOs advocate for sustainable and ethical business practices in the global market. They influence policies and corporate behavior on issues like environmental sustainability, labor rights, and social responsibility.