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INFLUENTIAL FACTORS OF INTERNATIONAL

BUSINESS AND INTERNATIONAL

BUSINESS ENVIRONMENT

By:Ankit D Jethani6937

Business Environment consist of every factors influential to the business operations. These factors are classified into two broad categories. These are:

a) External or Uncontrollable factors of Business environment. b) Internal or Controllable factors of Business environment.

External Factors: The factors those are not controllable at any cost but have to adopt for success of business are external or uncontrollable factors. For example Demography, Political forces, Legal practices, Cultural influences, Technological advancement, competitiveness etc.

Internal Factors: The factors those are related to the internal operations of a business and can be controlled by proper management are controllable or internal factors of business environment. For instance Land, Labor, Capital, Business Location etc.

EXTERNAL ENVIRONMENTAL FACTORS

1. SOCIAL CONDITIONS

A Sociological perspective of environment includes the Demographic Status and Trends, the Work Ethic and Personal Values and General Cultural Values. Each of these influences how management accomplishes its jobs. Each country has a unique Social Environment and as business becomes international, management must understand these unique environments.

a. Demography Demography means the total number of population of any particular territory. They have a greater influence of any business operation. For example in a mass populated area demand of consumer products will be comparatively higher than any lesser populated area. So, we can say that demography has a direct impact on business environment. Because demand direct towards maximization of sales. The higher the value of sales the more would be the profits. The more profits impacts on success business operations.

b. Cultural Forces Culture is that what we are that means our living, eating, food habit, way of dressing and way of speaking everything accumulated to our culture. For example wearing lungi, eating panta with hilsha fish on Bengali New Year is part of Bangladeshi culture, every Bangladeshi respect or practices this culture. It is usual tasks for Bangladeshi inhabitants. But it is not acceptable in western or European culture. Wearing shorts eating fast food, having wine party are their culture. But it is not acceptable in Bangladeshi culture. As a result demand of shorts and wine is completely higher in the western society than that of in Bangladeshi society.

c. Work Ethics and Personal ValueThe importance placed upon work by an individual is known as work ethic. Business organizations counted upon the desire to work in its employees, a work ethic expressed in dedication and company loyalty. However work ethic has changed especially in younger workers and it is obvious that the attitudes of the workers will impact upon the organization as it recruits, trains, rewards, and retains employees.

To help analyze the impact of Social Conditions on Business Environment let us take the following example.The report in Business & Population Monitor from chartered accounting and business advisory firm PKF, in conjunction with Access Economics examines the impact of demographic changes on the Australian business landscape, detailing the anticipated winners and losers across industry types and geographical regions.

The Beneficiaries of ‘Grey Gold’The report highlights the prognosis that Australia’s working-age population is expected to nosedive in the next five to 10 years, while at the same time, the ratio of over 65s to the 15–64 age group will almost double over the next three decades.

PKF’s Business & Population Monitor identified a number of key areas of opportunity for Australian businesses. While annual spending fell once a worker retired, certain types of retailing benefited, such as health insurance, gambling, books, home improvement and electronics as well as communications and travel. However, spending on clothing and footwear, cars and entertainment would reduce.

The report cited that investment in retirement villages and aged care accommodation, in particular, would continue to grow, with construction of aged care facilities topping $1.4 billion in 2007, up 38 per cent on the previous year, with the strongest activity in Tasmania and South Australia.

Businesses involved with health care are likely also to be winners from an ageing population, with older Australians expected to line the pockets of the health industry. New technologies and medical procedures provide clear areas of opportunity for businesses operating in these sectors. Significant investments in health care technology are required to meet the demands of the aged, who wish to maintain quality of life into their senior years and are generally prepared to pay to get it.

The Impact of the Mini ‘Baby Boom’ and Growing Migration

It’s not only the ageing population that will cause a seismic shift in Australia’s demographics. The large intake of skilled migrants from overseas and a mini ‘baby boom’ have helped drive population growth, which in turn has pushed the Australian economy along. This, of course, has already provided businesses with enormous opportunities.

According to PKF’s Business & Population Monitor, population growth in the ‘sun belt’ states of the Northern Territory, Western Australia and Queensland is running ahead of the five-year average, as their economies ride the crest of a resources and investment boom, with no signs of the growth slowing.

Moreover, migrants – the dominant driver of the recent uptick in the population increase – come with a greater need to buy up than do existing residents. New migrants bring relatively few physical possessions with them, and need to build their environment anew. As a result, new migrants are also a particular benefit to the accommodation sector.

The Call to Action for Businesses

The first challenge for businesses is recognizing that these opportunities exist. The second is to then do something positive about it.

The advice to businesses is to be aware of the impact of the ageing workforce changing composition, particularly the mature aged skilled worker leaving the workforce and taking valuable skills and experience with them. Also, as governments struggle under the financial burden of spending on additional expenditure, be prepared for increases in tax rates to bolster government revenue.

Those firms that get ahead of coming trends are most likely to profit. The ones that fail to recognize and adapt to the impending demographic shifts will be left behind.

2. POLITICAL INFLUENCES

Political environment has a direct impact on any county’s business environment. Some political environments result in a comparatively better business environment and vice versa. For instance Instable political environment in Bangladesh is a major obstacle for Bangladeshi operations. On the other hand before two decades Bangladesh, Vietnam and Malaysia were same ranking countries from economic aspects. But today Malaysia and Vietnam have advanced a lot themselves throw their proper political decisions, skilled leadership, finally stable political situation and responsible leadership make them emerging economical power in the southeast Asia as well as around the globe.

If we look closer at Home, Political Instability which followed the Parliamentary Elections of 1996 with no party having a clear majority had its impact on the industrial climate in 1997.

Form the above discussion it is quite clear that sound political environment has a great deal of positive on business operation and vice versa. Government policy of a country depends upon the political culture of a country. It can be different types based on the form of government. Such as, policy in a communist country will not be match with the policy of a democratic or monarchy form of government.

Not only will this government policy of a stable politics be better than an unstable political culture. In a stable political state government can take any business friendly decision to strengthen local business with the help of opposition party. But in unstable politics government can do better for attracting FDI but if opposition does not play its role from a constructive point of view or provide any distractive political course of action like, Trick, Riot, Not to attend in the parliament or changes all policies decided by the previous government like Bangladesh. These types of political culture hamper government policy as well as fell a bad impact on the business environment of that particular country.

Law & order situation should be controlled by the government. But if any government failed to control this important factor of batter business outcomes than the business environment of that country hamper & businessmen feel insecure than no foreign investor can try to come such as deadly environment. By this way businesses as well as total economy of that country fall down. Such as China has a control law & order situation & any investor have a positive thinking to invest in china which is not ensure in Bangladesh or some other country’s government.

Local government sign FTA with any other country. FTA opens a new market for the native investors / businessmen but if any government’s business policy can’t be so strong then no country will sign FTA with that country.To sign a FTA, the government of a country plays a vital role through making friendly relationship with international community. Thus signing FTA government can enlarge its business scope as well as control inflation in the native economy. For example if we compare Sri Lanka with Bangladesh we can see that Sri Lanka has FTA with India and Pakistan & they are trying to sign these types of agreement with some other country. This enlarged the scope of Sri Lankan businessmen to operate their business in more countries. Such facilities cannot be enjoyed by any Bangladeshi businessmen.

An example of indicating impact of Political Influence is how, after destroying former Soviet Union we are directly observing the US interference in the political situation of every country around the world. They impose different economics barriers / economics blockades even global sanction of different countries those who are not their followers or from which country they being unable to take any undue advantage. On the other hand they facilitate various countries from different economic and political aspects those who are their followers or from whom they are capable to take undue advantages. These types of US foreign policies hamper the normal flow of international business. This is not legal practice but an unavoidable impact of world politics on International business.

3. Legal/Regulatory Practices

Laws are the primary way in which Business is directly affected by the legal system of a country. Legal practices of any country have a direct impact on the business operation of that country. For example, if there are any bindings on the international business transaction from the legal authority of any country then no company can break down that rules.

For example we can take the case of License Raj

License Raj, which refers to the elaborate licenses, regulations and the accompanying red tape that were required to set up and run business in India between 1947 and 1990. Up to 80 government agencies had to be satisfied before private companies could produce something and, if granted, the government would regulate production. The License Raj was a result of India's decision to have a planned economy, where all aspects of the economy are controlled by the state and licenses were given to a select few. License Raj established the "irresponsible, self-perpetuating bureaucracy that still exists throughout much of the country" and corruption flourished under this system.

India had started out in the 1950s with:a. High growth rates.b. Openness to trade and investment.c. A promotional state.d. Social expenditure awareness.e. Macro stability

But we ended the 1980s with:a. Low growth rates.b. Closure to Trade and Investment.c. A license-obsessed, restrictive state.d. Inability to sustain social expenditures.e. Macro instability, indeed crisis.

The architect of the system of License Raj was Jawaharlal Nehru, India's first Prime Minister. Inspired by the economy in the Soviet Union, he implemented mixed economy in India. A mixed economy is one in which capitalism is followed with government control. Private players could manufacture goods only with official licenses. The quantity of goods they were allowed to produce was determined by the license regime, not by free-market demand.

Thus we can clearly see how Legal and Regulatory Practices impact the Economy and Business of a Country.

4. Economic Conditions

In the functioning of a Business Enterprise we can see that an organization makes use of resources (input factors) to produce goods and service (output). All this takes place within the general economic environment, which affects each of these factors.Few of those factors are:

a. EconomyAspects of the economy which must be considered by the management as it makes decisions are:

i. The existing stage of economy and the stage of the Business Cycle.ii. The Rates of Growth of GNP and Per Capita Income.

iii. Rates of Saving and Investment.iv. Volume of Exports and Imports.v. Inflation Rate.

vi. Interest Rate.vii. Government Budgetary Allocations.

viii. Changes in Distribution of income and Wealth.

b. CustomersThe primary facet of External Economics dimension is a firm’s customers. The goal of the decision making process is to better and more profitably reach the customers. Customers seek to have the right product at the correct place, at the right time, in the right form and at the right price. Management seeks to know the identity of the customer and as much as possible about the customer, who is called the target market.

c. CompetitivenessThere is no monopoly, duopoly, Tripoli market of any product around the Globe. That means in every product has mass competitors in the market. To become success in the competitive market one must have competitiveness. Competitiveness are some features of the product, the features are –

i. Distinguished quality.ii. Outstanding performance.

iii. Economy in price.iv. Better outlook

An example of the impact that Economic Condition have on Business Organizations can be analyzed with the initiation of the Economic Reforms by the Govt of India in 1991 involving the deregulation and decontrol, Trade Policy Changes and opening up the economy to foreign investment. These reformist measures have provided many opportunities as well as posed serious challenges and threats of increasing competition to Indian Companies.

Also the current scenario can help us to understand the impact of Economics Factors on Business and Industry in a better way. The subprime crisis led to the failure of various financial institutions and banks globally. This Global Financial meltdown has a caused a huge Havoc in various sectors and various markets globally. Currently there is a huge liquidity crunch worldwide and there is a huge gap between the demand and supply across the world markets. Many major companies are unable to meet their operational expenses and are on the verge of Bankruptcy (for eg The Big Three Auto Giants of US, namely Ford, GM and Chrysler). Countries across the world are trying to stimulate demand and are following various measures to maintain the required levels of liquidity in the markets. Various measures are being taken up such as Direct Bailout of Ailing companies (as we can see by the case of US Government bailing out AIG ) or the measures taken by the Indian Government by reducing various Interest rates (such as PLR, Repo, R-Repo, SLR, Cash Reserve Ratio and etc) in order to increase the money supply in the market and to bridge the gap between consumption and production.

5. Technological Advancement

The final factor in the external environment is that of Technology. It has one of the most dramatic effects on Business, as changes in technology are often felt quickly by the company. A Company may be thoroughly committed to a form of technology and may have invested heavily in machinery and training, only to see a new, more innovative and cost effective technology emerge. As seen by the unprecedented speed of growth of the Internet in the last five years of the 20th Century, markets can change almost overnight, much to the distress of the companies that fail to adjust to changing technology.

Technology is upgrading itself so quickly than that of our imagination. Telecommunication system has revolt every system than ever before. Because, only three decades ago communicating with a European partner with documentation was one month lengthy process. But today we are doing it within a moment. It has a greatest impact on business communication. Without rapid communication no business can run smoothly, profitably in the competitive market. There are two major aspects regarding the Technological Environment that a Business should be concerned about:

a. Process Of Innovation

The source of new technology is generally the Research and Development (R&D) of Private Industry, Government and Academic Research. A Company may decide to Invest in R&D and then make use of the developed technology or license it to other companies. Technological Discoveries can be patented initially for 17 years which gives the inventor the exclusive right to make use of technology or invention.

If the source of the innovation is in the past or even in current technology levels, it is said to be an Evolutionary Technological Innovation. If however the innovation does not build upon past technology and presents a significant shift from the past it is known as Revolutionary Technological Innovation.

b. Technology Transfer Process

Once a new technology has been discovered, the major issue becomes how to introduce it into an established technological environment. Most workers resist new technology until they are shown how this new technology will make them more productive and make their work life more easier. The more radical and innovative the technology the higher is the resistance. The relationship between Innovation and Technology is as follows:

A useful technique to handle this problem is known as incremental innovation which involves introducing new technology in smaller increments. Each change in technology is less distant from known technology therefore faces less resistance. This incremental approach can be seen as follows:

To study the impact of Technological Advancement on business and industry we can take the example of INTEL Corporation.

Intel is the world’s leader in silicon innovation.

Intel is best known for producing the chips that deliver this increased computing power. Computer chips are essentially collections of transistors - tiny electronic devices that control the flow of electricity to create the 1s and 0s that underpin computing.

Transistors are the building blocks of computer chips that Intel has been making for 40 years.Intel has been working to make these transistors smaller so that more of them could be fitted onto the same area of silicon, making the chips more powerful. This came at a price. Until recently, the smaller the transistors, the hotter the chips tended to run. In 2007 Intel developed a breakthrough in the materials used to construct the transistors. Not only can these transistors work faster, they can also do this while generating less heat. Intel has started to use this new material for its latest generation of processors. These are made from transistors only 45 nanometers in size. This means over 2,000 of them could fit on the full stop at the end of this sentence. A 45 nanometer transistor can switch on and off approximately 300 billion times a second. A beam of light travels less than a tenth of an inch during the time it takes a 45nm transistor to switch on and off.

Competitive advantage means a company has or does something better than its rivals. The ‘tick-tock’ strategy was announced in September 2006 by Intel’s CEO, Paul Otellini. It is a blueprint for Intel to maintain its technology leadership and competitive advantage. It plans to take advantage of Intel’s product research, development and manufacturing capacity to deliver improved products every year. This regular improvement will ensure continued market leadership. In ‘tick’ years Intel will introduce a new manufacturing process (of which the 45nm process is the latest). ‘Tock’ years will see the introduction of new designs (architectures) of CPUs (central processing units).

Intel is competitive because:

• It has a regular cadence (or rhythm) to the development of new products or improvements to existing ones.

• It integrates teams from R&D and all areas of manufacturing, all working to the same schedules. Intel is the only company that can combine and optimize manufacturing process technology, product design, leading-edge capacity, design tools, masks and packaging in-house.

• It sets the highest standards in high-quality clean production. The company invests vast sums in R&D and manufacturing. This makes it is difficult for rival companies to match Intel.

• It designs quality products. Intel continually develops new technologies that combine product-led, user-led, and market-led features.

• It is able to leverage its manufacturing capability. This means it can increase production to bring product to market in large volumes. Increasing volume and getting the product onto the market as quickly as possible are important elements in creating and maintaining a competitive advantage.

In order to protect its advantage it is essential that Intel registers intellectual property and patents in new product development. This registration is vital for Intel. This gives legal protection against copying by its competitors. The protected time allows it to sell its products without direct competition. These help to recover the investment costs of designing, researching and developing the new products.

INTERNAL ENVIRONMENTAL FACTORS

1. Land Generally land means soil but in business land includes everything inside the factory like boundary of land, size of building, machinery installments etc.

2. Labor Workforce is another vital element of productions and other business operations. Skilled manpower is not available everywhere but manpower can be skilled up through a marathon coaching of related tasks. At the same time we will have to think about the wages, working environment, job security, job satisfactions of the workers. Job satisfactions can provide best performance as well as creative outputs. Labors can be satisfied through offering different motives. It may be financial rewards and mental supports.

3. Capital Capital means financial liquidity of the organization. Fund may be collected from different sources. Such as –

a) Fully owned capital b) Through partnership agreement c) Taking loan from the financial institutions d) Collecting capital from capital market e) Joint venture fund collection from foreign market

Collecting fund is not the final tasks for proper business operations. Because proper utilization of the fund i.e. capital management functions have to be operated efficiently.

4. Business Location Business location is a major factor for successful operation of any business. Location should be selected based on the following criterions:

a) Transportation facilities b) Availability of raw materials c) Availability of labors d) Security

Better transporting facilities result in quick communication which is an essential factor for every business. Business location should be selected after thinking availability raw materials, skilled labor force and high security.

5. Owners’ Equity Owners’ equity is that portion of capital where liabilities are not included. Only self owned and other business offered facilities are included here.

ADDITIONAL INFLUENTIAL FACTORS IN INTERNATIONAL BUSINESS ENVIRONMENT

As stated above all factors will be applicable for the International Business Environment. There are many more factors should be added for International Business Environment. These are as follows: a) Regional cooperation associations like SAFTA, NAFTA, EU etc. b) WTO c) UN Activities d) Current world order e) International rules & regulations

Regional Cooperation AssociationThere are many regional cooperation associations are available around the globe. These associations are controlling their respective regional business functions. For example SAFTA, NAFTA, EU, ASEAN etc.

SAFTA SAFTA Stands for South Asian Free Trade Area. It creates a framework for the creation of a free trade zone covering 1.4 billion people in India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and Maldives. The seven foreign ministers of the region signed a framework agreement on SAFTA with zero customs duty on the trade of practically all products in the region by end 2012.

NAFTA The North American Free Trade Agreement (NAFTA) is a commercial agreement among Canada, the United States of America, and Mexico which promised free trade and easier flows of capital among the signatory nations. This commercial business agreement controls their international business a lot.

ASEAN The Association of Southeast Asian Nations (ASEAN) is a political and economic organization of countries located in Southeast Asia. ASEAN was formed on August 8, 1967 by the Philippines, Malaysia, Thailand, Indonesia, and Singapore, as a display of solidarity against communist expansion in Vietnam and insurgency within their own borders. Following the Bali Summit of 1976, the organization embarked on a mission of economic cooperation, which floundered in the mid-1980s only to be revived around a 1991 Thai proposal for a regional "free trade area". The countries meet annually.

WTO The World Trade Organization (WTO) is an international organization that establishes rules for international trade through consensus among its member states. It also resolves disputes between the members, which are all signatories to its set of trade agreements.