Understanding International Business Environment
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 6, 2022
Understanding International Business Environment
The international business environment refers to a kind of ecosystem where a business
trades goods/services in a global market. It plays a critical role in shaping the country's
economy and includes various aspects such as cultural differences, political affairs, taxation,
and legal issues. The best part about international businesses is the enhanced
communication with worldwide customers, thus helping brands expand, engage, and
incre Types of International Business Environment
There are many types of business environments in international domains, such as:
Franchises and licensed branding: Franchises and licences together is a business
agreement where brand aspects are shared within exchange for a fee.
Cross-border trading (imports and exports):Cross-border trade of goods and services
is defined through OCDE as transactions in goods and services between residents and non-
residents.
Joint ventures: Joint venture is a merger of two or more parties which seeks
development for a single enterprise, sharing the risks related to development.
Foreign Direct Investments (FDI) : Foreign direct investment comes within the cross-
border investment where investor resident within one economy establishes a last interest.
Other types of international business environments are:
Economic Environments in International Business
Economic activities that are conducted in a nation influence the growth and reputation
of international businesses. Factors may differ from one nation to the next, but improved
infrastructure, healthcare, education, and technology are some of the leading ones which
affect the day-to-day operations of businesses.
Countries may be divided based on their economic capacities and categorised as
industrialised, less developed, or struggling third-world nations. A business needs to analyse
the economic conditions of the region it's operating from and base its growth on it.
Particular aspects which international businesses focus on are:
GDP levels and per capita income
Direct and indirect taxes
Sourcing of raw materials, production costs, and supplier locations
Available infrastructure and operational challenges
Workforce size and availability, wages of employees, and pacing of economic
fluctuations
Technology Environments in International Business
Technology makes it easier for small businesses to achieve a global online presence and
scale up quickly. During the span of the last 20th century, many technological innovations
have led to companies using automation, streamlining workflows, and getting more done
fast. Machines and materials used in manufacturing processes and pipelines can be
upgraded, and technology offers companies a competitive edge.
It's also convenient for organisations to reach out and connect with customers. When
analysing technology environments, businesses should take into consideration the following
aspects:
Technology sources and how fast changes take place
Restrictions and infrastructure offered by the latest solutions
Time is taken to adopt new technology
Budget and the level of technology development as a whole for the enterprise
Cultural Environments in International Business
The cultural environment of an international business may be difficult to understand,
and this is because culture is intertwined with life and element that goes unseen. It is
described as a shared body of values, and beliefs, often hinging on factors such as national
history, government, education, and location.
Cultural values can provide a lot of data for businesses from various countries.
Managers find this model to be explorative, and having a strong appreciation for various
cultures can trigger employee growth and retention. A culturally flexible business has
greater chances of succeeding since the people working for the organisation align with
values and stay motivated.
Also Read: Unique Business Ideas for Your Business - Here's A List of 5 Unique
Business Ideas
Political Environment in International Business
Political environments refer to the government's relationship with a business and the
national state of affairs. Doing business across borders means dealing with international
governments, newer levels of risk, and regulations. There are different political systems an
organisation must account for before making any business plans overseas.
Some aspects to consider are:
The political system of the nation
Legal requirements for licensing and trade
Restrictions on importing capital goods and exporting products/services
Restrictions on the distribution and pricing of goods/services
Other procedural formalities involved in running the business
Competitive Environments
Competition is subjective and differs from nation to nation. Business in each country
differs in terms of geopolitical concern, national economy, environment and cultural
impacts. When an organisation changes business environments, the competition they face
also changes.
Competition may come from both the public and private sectors, with some
organisations having domestic and global competitors. If the business is relatively new, it
may face stiff competition from startups and small-scale enterprises that are trying to scale
up and dominate the segment.
Benefits of International Business Environments.
Setting up an international business environment benefits companies and employees
who work for the organisation. Once a company establishes credibility, it can win clients
worldwide and not worry about generating profits.
International business environments offer a multitude of benefits such as:
It unites countries together and builds an appreciation for different cultures
Boosts employment opportunities as a result of the exchange of information, ideas,
and philosophies across borders and services
There is price stability, consistent growth in wealth, and steady performance.
Businesses can develop new environments across the globe due to alliance,
modernisation, technology, versatility, and affluence.
Challenges Faced in an International Business Environment
Although an international business environment has pros, that doesn't mean the model
is void of disadvantages. Most international business environments face the following
challenges:
Communication barriers - This can be due to language or cultural
differences. International business environments require translation services so that
information is not interpreted during exchanges.
Currency Exchange Rates - The profitability of an international business model
depends on a country's exchange rates. If the difference is too high, a business could end up
making losses.
Compliance issues and regulations - Some countries may not allow the import or
export of specific goods and services. International business owners need to be well-versed
with the legalities of trading. Companies must conform to the laws, local rules and
regulations, and acquire the licensing or trademark requirements of the region they operate
from. Businesses may not have control over the flow of goods depending on which country
the products are being shipped to, too, because there is a possibility of customs seizing
them.
Cultural Differences - Multi-cultural and diverse international business environments
may be welcoming to international employees, but sometimes this arrangement doesn't
work out. The values of an organisation may not align with the employee's background and
cultural beliefs, and this can cause rifts in the workplace and reduce employee retention and
recruitment rates.
Customer expectations - The business environment could be impacted if a
product/service doesn't meet customer expectations. One negative feedback on the
company page can cause huge reputational damages if the brand is big enough. The more a
company grows, the greater the expectations are poured onto it. International businesses
that cannot tailor or customise to match customer requirements can have difficulty
generating profits. If competitors have similar products/services at cheaper rates, then sales
can get scarce.
Level of acceptance - If an international business sets its headquarters in a region
where the locals aren't friendly, that can be a problem. A business may have all the licensing
requirements, trademarks, and patents, but if the people of that region do not like it,
operations may get impacted. Depending on where the business originates from, there is a
certain level of hostility or unacceptance towards international businesses in some countries
and nations.
