written by | September 27, 2022

Understanding International Business Environment

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Table of Content


International business refers to the globalisation of trade and trading of goods and services in international markets. An environment is described as an ecosystem in which an international company conducts its daily operations. Business environments that go international have a large customer base and play a critical role in developing a nation's economy. 

Many aspects are involved in running the business, such as cultural, regional, political, economic, social, and geolocation factors. It is mandatory for people at all levels of the organisation to familiarise themselves with taxation rules, laws, exchange risks, and state regulations before doing any international business. Many firms that start internationally also have a good online presence since it makes them approachable to clients. Here is an overview of international business environments, benefits, factors, and industry challenges.

What is the 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 increase profitability.

Also Read: Business without Investment: Effective Ways to Start a Business with Zero Investment

 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.

Also Read: 17 Side Business Ideas for Housewives & Working Ladies

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.
  • Lack of opportunities - This is a rare phenomenon, but it may struggle if an international business environment introduces a product/service that's not well-known. Just like there are plenty of opportunities for firms, many can experience a lack thereof. 

Conclusion:

If you are planning to create an international business environment, just be aware of the issues you'll face and how to overcome them. Becoming a successful entrepreneur isn't easy, but a road paved with challenges. Working in these environments can be a highly rewarding experience since it exposes you to all walks of life. 

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FAQs

Q: How do COVID-19 or other pandemics affect international businesses?

Ans:

COVID-19 lockdowns' impact on international businesses was major, and many firms found themselves transitioning to remote working models. Most international brands are not offline-based these days and offer online services. From taking pre-orders, shipping, supply chain management, and employee recruitment, international businesses prefer to connect with global audiences over the internet.

Q: What are the major risks of international business environments?

Ans:

Major risks of international business environments are foreign exchange risks due to currency fluctuations and political concerns. Business owners worry about their models or services getting boycotted or taken off marketplaces due to cultural or religious sentiments.

Q: What factors are associated with international business environments?

Ans:

Factors related to regulatory and cultural influences, law and technology, and social norms surrounding business entities across sovereign nations are commonly associated with international business environments.

Q: What are the 4 key elements of international business environments?

Ans:

The 4 key elements of international business environments are political, economic, technological, and cultural.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.