DEPARTMENT OF BUSINESS ADMINISTRATION-BBA (GENERAL)
COURSE CODE: BBA 6.3
NAME OF THE COURSE: INTERNATIONAL BUSINESS
SEMESTER & SECTION:6TH SEM B & D
PREPARED BY : Prof. Sumalatha N
MODULE : 2 - International Business Environment
Meaning if IBE
The International business environment is a complex network of economic, political, legal,
and cultural forces that shape how organisations conduct international business. It consists of
external and internal factors that impact a company’s success or failure in different markets .
Internal Environment includes all the factors within an organization that affect its operations
and decisions. These comprise the company's resources (money, personnel, equipment),
capabilities (skills, technology, market information), and more abstract factors like corporate
culture and governance. For example, a company with a robust Research and development
department might excel in innovation, allowing it a greater competitive edge in foreign markets.
Extenal Environment encompasses factors outside the organization that significantly impact its
functions. These involve:
1. Economic Factors: This includes global economic trends, trade cycles, exchange rates,
inflation,and so on.
2 Sociocultural Factors: This entails understanding the social and cultural nuances of theforeign
market- their customs, norms, behaviors, and expectations.
3. Political Factors: This involves understanding the stability of a country's government, its
policies towards foreign businesses, trade tariffs, and import-export regulations.
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4. Legal Factors: This refers to laws and regulations that govern business in the foreign market.
5. Technological Factors: This indicates the level of technological advancement and
infrastructure available in the foreign market. Understanding both internal and external
environments allows a business to assess its strengths, weaknesses, opportunities, and threats,
aiding it in formulating better strategies for international business and reducing potential risks.
Difference between Internal and External Business Environment
Aspect Internal Environment External Environment
The organization has control over The organization has limited control over
Control
internal factors. external factors.
Internal factors directly impact the
External factors indirectly affect the
Influence organization’s operations and
organization’s operations and outcomes.
outcomes.
Organizational structure, culture, Market conditions, economic, legal,
Examples resources, policies, leadership, and regulatory, technological advancements, and
management. social and cultural factors.
Relatively controllable by the Often beyond the organization’s direct
Controllability
organization. control.
Can be shaped and adapted by the Requires monitoring and adaptation by the
Adaptability organization to achieve its organization to navigate challenges and
objectives. changes.
Internal factors inform and influence External factors provide insights and
Decision-
the organization’s decision-making considerations for the organization’s
making
processes. decision-making processes.
Primarily focuses on factors within Primarily focuses on factors outside the
Focus
the organization. organization.
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It can directly impact the
Impact on It can indirectly impact the organization’s
organization’s performance and
Performance performance and outcomes.
outcomes.
Control over The organization has control over its The organization may have limited control
Resources internal resources and capabilities. over external resources and capabilities.
ECONOMIC ENVIRONMENT
Economic environment consists of economic factors that influence the business in a country.
These factors include gross national product, corporate profits, inflation rate, employment,
balance of payments, interest rates consumer income etc
i) Income and wealth: Income in an economy is measured by GDP, GNP and per capita income.
High values of these factors show a progressive economic environment.
(ii) Employment levels: High employment represents a positive picture of the economy.
However, there are many forms of unemployment, including partial employment and disguised
unemployment.
(iii) Productivity: This is the output generated from a given amount of inputs. High levels of
productivity support the economic environment.
Importance of economic environment
i) Capitalizing early opportunities: Environment friendly enterprise is the first movers to avail
of the existing opportunities of resources to grab the market. These enterprises do not loose
emerging opportunities to their competitors.
ii) Activating management to changing needs: The knowledge of environmental changes
sensitizes the management to make strategy to cope with the emerging problems.
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iii) iii) Image building: Environmental understanding by the management builds image of the
company in the minds of the people. They feel that the company is sensitive and responsive to
their needs and problems.
iv) Basis of strategy: Strategists can gather qualitative information regarding business
environment and utilizing them in formulating effective plants.
v) v) Intellectual stimulation: Knowledge of environment changes provides intellectual
stimulation to planners and decision-making authorities. They can do it by paying more attention
to people by listening to their problems and suggestion. They can also eliminate procedure
complexities in a visible way.
vi) Continuous learning: Environmental scanning provides continuing broad based learning to
be executives. Reliance adopted the policy of decentralization and empowered their managers to
close the deal themselves even regarding price. In 1993 managers were require to chat with the
proprietress on alternate days for 15 minutes. The process made them so competent that now the
managers are required to chat only three times in a month. It shows that continuous learning
made the managers competent to take independent decision.
POLITICAL ENVIRONMENT
Political environment is defined as the state, government, institutions and laws together with the
public and private stakeholders who operate and influence that system. Business managers will
pay attention to the political environment to see how government actions will influence their
company. Political environment also includes the political culture which are views held about
what governments should act with relation to its citizens.
Meaning of Political Environment
Political environment is a system prevailing in a country. It has impact on every planning
Policies, Programs, decision making and control of the business and on the economy.
POLITICAL RISK
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Political risk can be defined as the impact of political change on the export firm's operations and
decision-making process.
Political risk is determined differently for different companies, as not all of them will be equally
affected by political changes. For example, industries requiring heavy capital investment are
generally considered to be more vulnerable to political risk than those requiring less capital
investment. Vulnerability stems from the extent of capital invested in the export market, e.g.
capital-intensive extracting or energy-related businesses operating in the foreign market are more
vulnerable than manufacturing companies exporting from a South African base.
All organizations do business abroad should be aware of the fact that what they do could be the
object of some political action. Hence, they need to recognize that their success or failure could
depend on how well they cope with political decisions, and how well they anticipate changes in
political attitudes and policies.
Legal Environment
Meaning of Legal Environment
The legal environment of a business refers to the relevant laws and regulations under which the
business operates. Legal environment includes factors that provide rules, and penalties for
violations, designed to protect society and consumers from unfair business practices and to
protect businesses from unfair competitive practices. It assures uniform application of the laws
by regulating the behavior and interactions of individuals against each other.
IMPORTANCE OF LEGAL ENVIRONMENT
I)Laws on Production or Sales: The production or sale of certain goods is prohibited, or at least
severely restricted in many countries. This includes, among others, selling of dangerous drugs,
guns and explosives, for instance. Aerosol cans containing CFCs, which are harmful to the
environment, or more specifically, the ozone layer, are banned and no longer produced.
ii) Consumer Protection: Most countries have laws ensuring customers are being treated fairly
by businesses. This includes the act regulating weights and measurements, ensuring that goods
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sold actually are the weight or size they are sold at, and the Trade Description Act, making
misleading descriptions of products illegal.
Iii) Employee Protection: Laws to protect employees include laws against unfair discrimination
based on race, color, religion, sex, or age; laws against unfair dismissal and sexual or other
harassment, health and safety laws and laws regulating minimum wages. Many countries make
written contracts between employer and employees mandatory.
iv) Tax and Financial Laws: These laws vary between countries, but generally regulate
accountancy practices, interest rates on loans, taxes etc. Businesses are expected to provide
sufficient documentation of income and expenditure, for instance.
DEMOGRAPHIC ENVIRONMENT
Demographics are about the characteristics of the population in a specific area and includes
multiple factors like age, race, income, etc. Further, most businesses find the data with respect to
these factors within the targeted demographic variable of interest as it can affect the growth and
success of a business.
Characteristics of Demography
1. Size: The size of the country is estimated by counting the number of the people in thay
country. The size of the population and its growth rate has both demand and supply sids effects.
An expansion in the size increases the consumption needs and the amount of labour.
2. Composition: The composition of population can be assessed by classifying it by using
different criteria described as follows: Age compositions/generations: The population divided
into three categories: Population Age Child 0-14 Working 15-64 Aged 65 and above
3. Race/Ethnicity: Classification of population on the basis of race or ethnicity is subjective a
individuals usually identify their own race or ethnicity in the population census conducted by
their countries. for genus census there are six race/ethnic categories.
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4. Religion: Religion categories in demographic classification also vary across countries. In
India major religions are Hindu, Christian and Muslim. Business organization take care of the
religious sentiments while designing their products. For e.g.: McDonalds India
5. Language: Depending on the major language spoken in a particular country, the classification
of population according to language also varies across countries. For eg Regional radio stations.
6. Education: Education profile is assessed by enumerating the number of people of 18 years
and above attaining a specified level of education. Education level also often influences income,
product choices and standard of living. Businesses, hence, often use such information for market
research and product targeting. For e.g.: IT companies.
7. Occupation: Different countries have been using different occupation classification
Occupational data is used by businesses for targeting and pricing for their products. For e.g.
Insurance Companies.
8. Income: Income, being a primary measure of well-being of a person, influences his/her
purchasing power and choices. Income can be aggregate income of a person or per capita
income. Brands are specifically developed and positioned within particular income segments to
maximize turnover and profit. For e.g.: Rolls Royce cars and Tata Nano.
9. Gender composition: One of the basic characteristics of demography, the gender composition
largely reflects the underlying social, economic, and cultural patterns of a society. Gender
classification of population is often analyzed by businesses as men and women have different
psychological and physiological needs and they shop differently. Such segmentation is widely
used within cosmetics, clothing and magazine industry. For e.g.: Fair and handsome, Fair and
lovely, Femina.
10. Family life cycle: The stages of life through which families go through is known as family
life cycle. It is expressed as, Families with no children Families with children.
11. Distribution: Distribution of population depicts the density in a particular area. Population
density is estimated per square mile of land area and measured by the foliowing formula: ?
Population density = Total Population of the Area/ Size of the Area. Population density is an
important indicator of quality of life.
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Socio-cultural Environment
Meaning of Cultural Environment
The cultural environment refers to the institutions and other forces that affect the basic values,
behaviors and preferences of the society-all of which have an effect on consumer marketing
decisions.
Meaning of Socio-cultural Environment
Socio-cultural environment refers to the sum of all learned attitudes and behaviours that
influence how a person thinks and behaves. For example, the way a person dresses or feels about
the need to express their individuality, is largely selected from a set of options available in that
person's socio-cultural environment.
FACTORS OF THE SOCIO-CULTURAL ENVIRONMENT
1) Language
Language is central to the expression of culture. Within each cultural group, the use of words
reflects the life-style, attitudes and many of the customs of that group. Language is not only a
key to understanding the group; it is the principal way of communicating within it. A language
usually defines the parameters of a particular culture. Thus if several languages are spoken
within the borders of a country, that country is seen to have as many cultures.
ii) Material culture
The material culture of a particular market will affect the nature and extent of demand for a
product. Whereas a luxury item, such as a sophisticated piece of computer hardware, may have a
ready market in a country such as France, demand for it may be non-existent in a developing
country which is hampered by inadequate facilities and/or foreign exchange shortages. The
material culture of a country may also necessitate modifications to the product .
iii) Aesthetics
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A culture's aesthetics refer to its ideas concerning good taste and beauty as expressed in the fine
arts-music, art, drama, dance and in the appreciation of colour and form. Insensitivity to aesthetic
values can not only lead to ineffective advertising and package design for products, it can also
offend prospective customers.
iv) Social organization
Social organization refers to the ways in which people relate to one another, form groups and
organize their activities, teach acceptable behaviour and govern themselves. It thus comprises the
social, educational and political systems of a society.
In a culture where great importance is attached to the family unit, promotional efforts should be
directed at the family rather than the individual. The size of the family unit differs from one
culture to another. It can range from the nuclear family, Le. mother, father and children, to the
extended family which includes many relatives and whose role is to provide protection, support
and economic security to its members.
v) Religious beliefs, attitudes, values, space and time
Religious system refers to the spintual side of a culture or its approach to the supernatural.
Western culture is accepted as having been largely influenced by the Judeo- Christian traditions,
while Eastern or Oriental cultures have been strongly influenced by Buddhism, Confucianism,
Taoism and Hinduism. Although very few religions influence business activities directly, the
impact of religion on human value systems and decision-making is significant.
Attitudes are psychological states that predispose people to behave in certain ways. Attitudes
may relate, for example, to work, wealth, achievement, change, the role of women in the
economy, etc.
Cross culture
Cross culture means the interaction of people from different backgrounds in the business world.
Cross culture is a vital issue in international business, as the success of international trade
depends upon the smooth interaction of employees from different cultures and regions.
CROSS CULTURAL ENVIRONMENT
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Globalization, the expansion of intercontinental trade, technological advances and the increase in
the number of companies dealing on the international stage have brought about a dramatic
change in the frequency, context and means by which people from different cultural backgrounds
interact Within companies there are many facets in which cultural differences manifest.
Some key areas which cross cultural consultants deal with include but are not exclusive to, the
following:
i) Cross Cultural HR
HR covers a wide range of business critical areas that need cross cultural analysis. Consultants
may offer advice on a number of areas including recruitment, relocation, international
assignments, staff retention and training programmes.
ii) Cross Cultural Team-Building
In order to have a well functioning business unit within a company, communication is critical.
Cross cultural consultants will provide tools and methods to promote staff integration, reduce
cross cultural conflicts and build team spirit. This is essentially done through highlighting
differences and building on strengths to ensure they are used positively.
iii) Cross Cultural Synergy
International mergers, acquisitions and joint-ventures require people from different cultural
backgrounds to harmonize in order to succeed. Cross cultural consultants counsel on group
mechanics, communication styles, norms, values and integration processes.
iv) Cross Cultural Awareness Training
Working with colleagues, customers or clients from different cultural backgrounds, with
different religions, values and etiquettes can occasionally lead to problems. Cross cultural
awareness training is usually a generic introduction into a culture, country, region or religion.
The aim is to equip the trainee with the adequate knowledge to deal comfortably with people
from different cultures, avoiding misunderstandings and mistakes.
v) Cross Cultural Training for Expatriate Relocation
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Staff that travel overseas need to understand the cultural basics of the host country ar region.
Knowledge of the country's history, culture, laws, traditions, business practices and social
etiquettes all help to minimize the impact of culture shock and hence smooth their transition
overseas.
vi) Cross cultural Negotiations
Equipped with their knowledge of the two or more cultures that can be meeting around the
negotiation table, a cross cultural consultant advises on areas such as negotiation strategies,
styles, planning, closure and etiquette in order to increase the chance of a successful outcome,
free from misunderstandings, suspicions and general cross cultural communication breakdowne
vii) Cross Cultural PR Consultancy
Brand image, public relations and advertising are all areas companies must be careful of when
moving out of the national context. Tastes and values change dramatically from continent to
continent. it is crucial to understand whether the brand name, image or advertising campaign is
culturally applicable in the target country. Cross cultural consultants examine words, images,
pictures, colours and symbols to ensure they fit well with the target culture.
viii) Cross Cultural Language Training
Language training is an area where little investment is made by companies but where the
business advantages are great. Linguistic knowledge goes a long way in bridging cultural gaps
and smoothing lines of communication. Cross cultural consultancies provide language training to
business staff, moulding their learning to the business environment in which they work.
CROSS-CULTURAL MANAGEMENT
Cross cultural management refers to a system designed to train people in the global business
about the variations of cultures, practices and preferences of consumers around the globe.
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TECHNOLOGY AND TECHNOLOGICAL ENVIRONMENT
Meaning of Technological Environment
Technological environment refers to the firm's external environment in which changes in
technology affect the firm's marketing effort. The changing technological environment may pose
threats or present opportunities.
Social benefits of Technological Environment
1) Convenience: Provides a great deal of convenience in expediting personal and business
transactions be it shopping, banking or simply paying bills.
ii) Speed: From sending gifts to making payments everything gets a done with a few clicks.
Ill) Communication: The world is a smaller place and technology allows everyone to keep in
touch with their families and friends at a more affordable cost.
iv) Accuracy: Technology has reduced errors in mundane and monotonous chores, saving time
and cost.
v) Development: Technology has brought about development in many fields such as medicine,
government, business, education, etc.
Steps for Technological Development in India
1. Establishment of technological and research institute: Indian govt. has established 500
technological institutes for providing education to Indian students. It has also established 1080
research institutes. In these institutes major names like space research centre, medical research
centre and agricultural research centre have developed India technically.
2. Positive Technical policy: India has strong and positive technical policy for technological
development. This policy opens door to import technology from foreign countries for increasing
agricultural and industrial developments.
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3. High Growth Rate of Information Technology in India: In India, IT sector is developing
with 35% growth rate, India is second country after China who is using internet at large scale for
e-commerce, e-education and e-accounting.
4. Incentive for promoting Technology in India: Indian Govt. has given 100% income tax
exemption for expenses incurred in research of technology in India. State financial corporation is
uplifting domestic technology by supporting finance to domestic Industries.
Benefits of Technology in Business
1. Benefits of Technology in Communication
Some of the benefits of technological advancements in the field of communication are:
i) Speed: time is no longer a constraint in communication.
ii) Clarity: With megapixel images and video and high fidelity audio systems clarity in
communication has become a never-before experience.
iii) Proximity: Technological advancements have made the world a smaller place to live in.
iv) Dissemination: whether spreading information, broadcasting news or sharing knowledge,
technology has made it faster, easier and smarter.
2. Benefits of Technology in Education
Some of the benefits of technology in this field are:
i) Personalized learning experience: Learners are able to take control and manage their own
learning. They set their own goals, manage the process and content of learning and communicate
with peers.
ii) Immediate response: Most e-learning programs provide immediate feedbacks on leamer
assessments. Similarly there are features such as chat, discussion boards, e-libraries, etc. that
allow clarifications at a faster pace than in traditional classrooms.
iii) Self-paced: Learners can chart courses at their own pace. This ensures higher levels of
motivation both in terms of completing the course as well as in performance.
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iv) Greater access: Technological advancements have opened education to learners with learning
disabilities and in remote locations.
3. Benefits of Technology in Healthcare
Some of the major benefits are:
i) Secure environment: Technology allows physicians and patients to interact in a secure and
comfortable environment to discuss sensitive issues.
II) Flexibility: Physicians can answer routine and less critical queries at a convenient time.
iii) Cost- and time-saving: Physicians can follow-up, provide advice and re-direct patients to
resources on the internet. This saves cost and time by reducing office visits.
iv) Medical devices: Medical aids allow patients to continue recovery at home reducing their
hospital stay.
v) Vulnerable population: Technology aids the very young, elderly and patients with complex
birth defects, chronic illnesses and disabled children by alleviating their problems so that they
can continue living in their homes.
NATURAL ENVIRONMENT
The natural environment encompasses the entire system of living and non-living things on Earth,
creating a complex and interconnected web of ecosystems.
Here are some key components of the natural environment:
[Link]: Defined areas where living organisms interact with each other and their physical
environment. Examples include forests, deserts, oceans, and grasslands.
2. Biodiversity: The variety of life on Earth, including the number of species, genetic diversity
within species, and the variety of ecosystems. High biodiversity contributes to ecosystem
resilience and stability.
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3. Atmosphere: The layer of gases surrounding the Earth, including oxygen, nitrogen, carbon
dioxide, and other trace gases. The atmosphere plays a crucial role in supporting life and
regulating the planet's temperature.
4. Hydrosphere: All the water on Earth, including oceans, rivers, lakes, groundwater, and
atmospheric water vapor. Water is essential for the survival of living organisms and is a key
component of various natural processes.
5. Geosphere: The solid part of the Earth, including rocks, soil, and landforms. The geosphere
interacts with the other spheres to shape the landscape and influence the distribution of living
organisms.
6. Climate: The long-term patterns of temperature, humidity, precipitation, wind, and other
atmospheric conditions in a particular region. Climate influences the types of ecosystems that
can thrive in an area.
7. Flora (Plants): The diverse plant life that forms the foundation of terrestrial ecosystems.
Plants play a crucial role in producing oxygen, providing food, and creating habitats for other
organisms.
8. Fauna (Animals): The wide array of animal species that inhabit different ecosystems.
Animals contribute to ecosystem dynamics through predation, herbivores, pollination, and other
ecological interactions.
9. Microorganisms: Tiny organisms, including bacteria, fungi, and protists, that play vital roles
in nutrient cycling, decomposition, and other essential ecological processes.
10. Natural Processes: Various natural phenomena and processes, such as photosynthesis,
cellular respiration, nitrogen fixation, and the water cycle, that sustain life on Earth.
Preserving the natural environment is crucial for the well-being of both ecosystems and human
societies. Conservation efforts aim to protect biodiversity, maintain ecosystem services, and
address environmental challenges, including climate change, pollution, deforestation, and habitat
destruction.
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