INTERNATION BUS. ENVIRONMENT - FURTHER READING

Chapter 3: International Business Environment

Objectives

  • Identify factors affecting international business activity.

  • Assess the impact of economic, political, legal, social, cultural, and technological factors on international business.

  • Discuss political and economic systems' effects on international business.

  • Identify the impact of 21st-century political and economic events on international firms.

A. Economic Environment

1. Macroeconomic Environment

  • Definition: Analyze overall economy, considering large-scale economic issues.

  • Factors to Consider:

    • Population and Income: Knowledge of population demographics and income levels is crucial for market viability.

    • Economic Advancement: Keep abreast of developing countries as potential markets characterized by:

      • Low agricultural workforce allocation.

      • Low-cost energy supply.

      • High gross national product and income.

      • Urbanization and diversified manufacturing.

    • Structure of Consumption: Examine consumption patterns, as wealthier nations invest more in capital goods versus poorer nations focusing on consumer goods.

    • Engel’s Law: Poorer households allocate a higher percentage of income to basic needs like food.

    • Economic Systems: Understand varying systems:

      • Capitalism: Individual ownership is permitted.

      • Communism: State control over production and distribution.

      • Socialism: A mix of free market and state control.

    • Mutual Economic Dependence: Analyze how one country's economy is interlinked with others, especially for major trading partners.

2. Microeconomic Environment

  • Definition: Focus on factors specific to a company's market and competition.

  • Competition Assessment:

    • Identify current and emergent competitors, their strategies, strengths, and weaknesses.

    • Understand the commitment level of competitors towards market segments.

B. Political Environment

Unique Political Characteristics

  • Political stability is critical; instability exposes businesses to:

    • Violence and expropriation risks.

    • Operating restrictions and capital repatriation limitations.

  • Assess factors impacting political climate:

    1. Type and stability of government.

    2. Government's economic management quality.

    3. Policy changes affecting foreign investment and relations.

  • Government Stability Indicators:

    • Public unrest and demonstration activities.

    • Economic management practices.

C. Legal Environment

Importance for International Business

  • National laws affect all cross-border business activities.

  • Understand national, private international, and public international laws, and regulations relevant to foreign markets.

Key Legal Considerations

  • Tariffs: Taxes on imports/exports influencing trade.

  • Antidumping Laws: Prohibit selling products at below fair market value to protect local industries.

  • Licensing Requirements: Compulsory export/import licenses facilitating trade monitoring.

D. Cultural Environment

  • Cultural diversity affects business interactions greatly.

  • Recognize cultural values' influence on market behavior:

    • Elements of Culture:

      • Material life, social interactions, language, aesthetics, religion, and morals.

  • Analyze cultural motivations, behaviors, and adaptation strategies for marketing and promotion.

E. Technological Environment

Effects of Technological Change

  • Understand how technology impacts:

    • New product offerings and lower production costs.

    • Distribution methods and communication strategies with customers.

  • Importance of adapting to and leveraging new technologies to stay competitive.