Factors Affecting International Business

Factors Affecting International Business

Factors Affecting International Business

Factors Affecting International Business Many factors have a great influence on international business. These factors included a variety of elements that can shape the success or failure of any business operating on a global scale. Understanding these factors is important for organizations seeking to thrive in the complex and dynamic international business environment.

Different factors that affect an international business are as follows:

1) Political Factors

These factors concern government policies, laws and administrative orientations of different countries and regional economic blocks. Political factors form the basis for regulating international trade concerning tariffs, quotas and technical standards. Countries with a strong business sector have different political priorities that either help or hinder the country’s ability to conduct international trade.

2) Economic Factors

Any business’ success is tied to the health of the economy, which in turn affects the demand for your goods and services in international markets. The level of demand for goods or services in international markets is influenced by rates of economic growth. However, economic growth rates may be high in some nations and low in others. For example, the 2010-2012 Eurozone debt crisis slowed down economic growth in many European countries at a time when nations in other areas were experiencing an economic boom.

Some economic factors that have a direct impact on international business include the following points:-

  • Fiscal policy
  • Interest rates
  • Inflation rates
  • Employment level
  • Income distribution
  • Demand for various products
  • Value of the country’s currency
  • Allocation of government budget
  • The purchasing power of the customers

3) Technological Factors

Technology availability and the technical capabilities of multinational companies play an important role in determining corporate prosperity in host countries. Factors such as broadband connectivity and technical training have become important components of successful operations in the modern business world. Moreover, the levels of technological development in a given country determine the scope of technical understanding among its population. While it may be easier to develop and maintain high-technology operations in countries with a strong technological base, the same cannot be said for low-tech nations.

4) Social Factors

Demographic factors such as religion and culture affect the types, quality, functional features and demand levels of your products in international markets. Social factors such as awareness, education, and the trends in society have an impact on consumer behaviour when it comes to purchasing various goods and services. Cultures attach different meanings to time, objects, names, colours and attitudes. For example, General Motors experienced low sales when it introduced the Nova car in Latin American markets because the car name translated to “it does not move” in Spanish. Therefore, multinational corporations must be able to understand, interpret and respond to cultural nuances and patterns that are characteristic of the international business environment.

5) Culture

The culture of the nation and the companies should have a global outlook. The companies should have the long-term perspective of moving where the market opportunities are good for long-term success. The inward-looking culture makes companies remain local. For example, unlike Korean companies who look for global markets LG, Samsung, and Indian companies, Hindustan Motor was inward looking.

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6) Market Competition in Host Country

If the best companies from around the world enter a market, it leads to intense competition and some less-effective companies will have to go out of business or have no choice but to shutter their doors. For example, Daewoo cars in India.

7) Costs

The competition calls for marketing and producing high-quality products at reasonable prices. If prices are high the market rejects the products. For example, ‘Samay’ timepieces could not stand the global competition as the Chinese offered the same quality at half the prices.

8) National Controls

The nations build barriers for outside country manufacturers by increasing trade barriers. Trade barriers will be direct through high customs duties. Indirect barriers will be licensing procedures, quota system, certification, inspection, and tedious paperwork. For example, India and former Russia were inward-looking economies for five decades with large trade barriers until 1990.

9) Nationalisation

Nations that have distinct ideological beliefs often do not trade with each other. For example, many nations do not trade with Israel and U.S. with Iran.

10) War and Terrorism

The political uncertainties and war-like situations are blockages to the growth of trade. For example, Trade between India and Pakistan does not exist for 50 years although they are adjoining neighbours and were one country before August 1947.

11) Shortsightedness of Management

Sometimes management ignores vast business opportunities across national borders. The companies do not wish to expand beyond the borders of their country. If a company does not adapt to local circumstances, it does not survive. For example, Parker Pen company in the U.K. did not adapt to local conditions hence the company was sold.

12) Organisation History

Some companies are contended and like to remain within a nation. For example, many public sector companies of the Government of India.

13) Domestic Forces

The government or social restrictions imposed on commerce and industry become hurdles in a company going global. For example, Hindustan Aeronautics Limited (HAL) has to serve only the Indian Air Force.

14) Conflict within Companies and International Organisations

Differences of opinion in strategies adopted between different management levels in international business or subsidiary working is a cause of failures.

15) Lack of Home Country Support

Home country support for export investments and tax matters is essential for the success of international business. If support is insufficient, the international business proposal fails.

Factors Affecting International Business

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