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.