The 5 Major Elements of International Business Environment

No business, whether international or domestic, runs in isolation. Even monopolistic industries, where there is no competition, have external factors that affect their businesses. All the international businesses operates within a specific environment. The international business environment consists of all the factors that are not in control of business owners but still influence their business. And hence one needs a deep understanding and a complete analysis of these factors before expanding their business in a certain region. Only then you will be able to take your business in the right direction and make sound decisions about it.

To know more about International Businesses and how they are carried out, READ : What is an International Business and it’s types.

The major factors that make up the International Business Environment are;

–         Politics

The politics of the country/region that you are operating in has a huge impact on your business. The political environment of a country tells you how easy it is to do business in that country. For example, a democratic state will be more supportive of your business than a monarchy, because they will be more open towards free trade. Totalitarian monarchy or dictatorship, on the other hand, would have restrictions and very rigid policies. Governments might interfere with businesses and there are more chances of corruption.

Furthermore, it might be easier to make revenue in a capitalist country rather than a communist.

For example, the iPhone may manufacture their products in China but they have not been successful in selling those products to the Chinese market.

–         Economy

The economy of a state or region plays the most important role in terms of doing business there. The economic situation of a country tells you how successful your business is going to be in that country. The economic part of the International Business Environment consists of the inflation rate, GDP, cost of labor, as well as the standard of living for the people there.

You can not use the same strategy in a developed or under-developed country. The people of these countries have different needs and you can not sell your product/service to them without changing some aspect of it.

For example, a lot of Multinational Corporations have their factories set up in Asian and African countries because of the cheap labor.

–         Technical

Analysis of the technical environment of the country tells us about how the people of that country feel about technology and digital advancements.  How acceptable and adaptable the people of that country are to technological innovation.

This also tells us how easy it is going to be for us to run our business there, especially businesses that sell manufactured goods. If the region does not have the latest and most advanced machinery then your costs might show a significant increase compared to a region that does.

–         Cultural

The beliefs and the values of the people make up the culture of that region. And while they may not be the barriers of entry for your business but they sure are factors that you need to consider to keep your business running. These values and beliefs influence the choices that people make and play a huge role in convincing them to use your product or service.

For example, you cannot sell a black wedding gowns to people who do not consider it a happy color.

The interesting thing about culture, though, is that it keeps changing. The cultural trends and attitudes that people of a particular place follow can change over time. And one might think of it as a challenge, keeping up with the new trends and attitudes, but it can be an opportunity as well.

–         Legal

The legal environment of the country tells us how strictly the laws are followed there and how just and fair their legal system is. What are the trade laws that are followed in that country?

As a business owner, it is very unlikely that everything will go smoothly. You might have some issues with suppliers that you need to know who do you consult in case that happens. These are the things that you can be sure of unless you analyze the legal system of the country.

Together these elements make up the International Business Environment. Having a thorough knowledge of each of these elements will help you a lot in satisfying your customers and reducing the risks of your business. They will also help you win against your competitors.