Cross Border Trading:

It includes import and export of goods and services

Setting up of franchise units in other countries. It involves the cost of franchise and other expenses. Unit has to pay royalty to the Franchiser.

Giving of rights to business entities in other jurisdictions, so that they can do business in their name.

Joint Ventures (JVs):

Partnering up with local players to enter the domestic markets of other countries such as TATA Starbucks and Vistara Airlines.

Foreign Direct Investment (FDI):

Direct investment in some other jurisdiction or country to set up the business, manufacturing or similar unit. FDI is very beneficial for the receiving country as it helps in the development and growth of the country.

Government Stability:

If the government of a country is stable it would attract more foreign investments as they will feel safe and confident about the their investment and growth prospects

Government Regulations:

More stricter the regulation lowers the rate of investments. Therefore there needs to be a perfect balance while drafting regulations so that they can ensure compliance and don’t become burdensome at the sametime.

International Relations:

If a country has effective and strong alliances or international relationships. It shows that the government of the particular country is strong and if required the alliance can be used to expand in related countries as well.

Economic Environment — Factors affecting economic environment are as follows:

Exchange Rate: It is one the most important factors as exchange rate has a huge influence in the investment decision. Because for international investments currency exchange is required and if the rates are very high it will increase the formality cost.

Just like political stability a country also needs to have financial and economic stability as investing in a country with an unstable economy is not considered as a good idea.

Market Size, Customer Behaviour etc:

Various market forces such as market size, customer behaviour, purchase power etc have huge impact on the economic environment of any country.

Technological Environment:

— Factors affecting technological environment are as follows:

Digital Infrastructures:

One of the basic required features of any market in today’s digital world is internet enabled digital infrastructures such as UPI, e-commerce platforms, Digital Payment System etc.

Other Infrastructures:

Other than the digital infrastructures other conventional infrastructure such as roads, electricity, airports etc also play a major role. They are the basic required infrastructures without which international investments won’t be successful.

The system of the country should be technologically advanced in order to attract international investment. Technology sharing, developing and incorporation is must and should be promoted by the government as well.

Male female ratio, literacy ratio, employment ratio and other similar ratios and data are involved in demographics which tell about the social aspect of any country.

Cultural Differences:

Removal of cultural difference or maintaining harmony between them is required in order to successfully sustain in other jurisdictions.

Any new business can’t survive in a new market if it is not accepted by the customers. Investment in products which are well accepted is a good option. Introduction of a new product would require high efforts to make it acceptable in the market first.

Availability of Resources:

If a country has huge natural resources that they can use for doing production or other business activity.

Environmental Factors:

Factors such as climate, soil type, plains & hilly land ratio, rivers etc also play a major role.

Environmental Regulations:

If a country has huge environmental protection regulations then it might disappoint some investors. Especially those businesses which produce high waste and pollution.

The IPR landscape plays a significant role in the legal environment of any country.

The business laws of any country play a major role. It includes possible incorporation options, rights and liabilities of business and their compliance requirement as well.

Other regulations and laws such as security law, banking regulations, economic laws, insolvency laws etc also play an important role in attracting foreign investments.

Government Restrictions:

Some businesses are restricted to accept any kind of foreign investments by the government in order to safeguard their security and public interests. Such sectors are defence, nuclear, power generation etc. Moreover some sectors are solely controlled by the government such as Railways.

If other big players are already present in a market then such a market will experience new investments rarely. Because of high competition and entry barriers.

Business Management

Understanding International Business Environment

Sarat

October 24, 2024

5 min read

Introduction

IBE or International Business Environment is a sum total of all the factors which may impact the functioning and strategic planning of firms operating on global or international levels. In the simplest form, IBE refers to the international surroundings in which any firm operates. Moreover, IBE is not restricted only to the companies but it also plays a crucial role in the growth and development of any country. In today’s interconnected and globalised world businesses of every scale are looking for international opportunities. Hence understanding IBE and the factors affecting it is a precondition to step into the international market and tap global opportunities. It will help you in planning international expansion strategies more comprehensively and effectively. Through this article, you will understand everything you need to know about IBE.

Different Forms of IBE

There are various forms of International Business, which are as follows:

Cross Border Trading: It includes import and export of goods and services

Franchising: Setting up of franchise units in other countries. It involves the cost of franchise and other expenses. Unit has to pay royalty to the Franchiser.

Licensing: Giving of rights to business entities in other jurisdictions, so that they can do business in their name.

Joint Ventures (JVs): Partnering up with local players to enter the domestic markets of other countries such as TATA Starbucks and Vistara Airlines.

Foreign Direct Investment (FDI): Direct investment in some other jurisdiction or country to set up the business, manufacturing or similar unit. FDI is very beneficial for the receiving country as it helps in the development and growth of the country.

Elements/Types of IBE and Factors Affecting Them

There are various factors which affect these environments or elements of IBE, which are as provided below for your reference:

Political Environment — Factors affecting political environment are as follows:

Government Stability: If the government of a country is stable it would attract more foreign investments as they will feel safe and confident about the their investment and growth prospects

Government Regulations: More stricter the regulation lowers the rate of investments. Therefore there needs to be a perfect balance while drafting regulations so that they can ensure compliance and don’t become burdensome at the sametime.

International Relations: If a country has effective and strong alliances or international relationships. It shows that the government of the particular country is strong and if required the alliance can be used to expand in related countries as well.

Economic Environment — Factors affecting economic environment are as follows:
- Exchange Rate: It is one the most important factors as exchange rate has a huge influence in the investment decision. Because for international investments currency exchange is required and if the rates are very high it will increase the formality cost.

Economic Stability: Just like political stability a country also needs to have financial and economic stability as investing in a country with an unstable economy is not considered as a good idea.

Market Size, Customer Behaviour etc: Various market forces such as market size, customer behaviour, purchase power etc have huge impact on the economic environment of any country.

Technological Environment: — Factors affecting technological environment are as follows:

Digital Infrastructures: One of the basic required features of any market in today’s digital world is internet enabled digital infrastructures such as UPI, e-commerce platforms, Digital Payment System etc.

Other Infrastructures: Other than the digital infrastructures other conventional infrastructure such as roads, electricity, airports etc also play a major role. They are the basic required infrastructures without which international investments won’t be successful.

Technology: The system of the country should be technologically advanced in order to attract international investment. Technology sharing, developing and incorporation is must and should be promoted by the government as well.

Social Environment — Factors affecting social environment are as follows:

Demographics: Male female ratio, literacy ratio, employment ratio and other similar ratios and data are involved in demographics which tell about the social aspect of any country.

Cultural Differences: Removal of cultural difference or maintaining harmony between them is required in order to successfully sustain in other jurisdictions.

Customer Acceptance: Any new business can’t survive in a new market if it is not accepted by the customers. Investment in products which are well accepted is a good option. Introduction of a new product would require high efforts to make it acceptable in the market first.

Geographical Environment — Factors affecting geographical environment are as follows:

Availability of Resources: If a country has huge natural resources that they can use for doing production or other business activity.

Environmental Factors: Factors such as climate, soil type, plains & hilly land ratio, rivers etc also play a major role.

Environmental Regulations: If a country has huge environmental protection regulations then it might disappoint some investors. Especially those businesses which produce high waste and pollution.

Legal Environment — Factors affecting legal environment are as follows:

IPR: The IPR landscape plays a significant role in the legal environment of any country.

Incorporation: The business laws of any country play a major role. It includes possible incorporation options, rights and liabilities of business and their compliance requirement as well.

Other laws: Other regulations and laws such as security law, banking regulations, economic laws, insolvency laws etc also play an important role in attracting foreign investments.

Competitive Environment — Factors affecting economic environment are as follows:

Government Restrictions: Some businesses are restricted to accept any kind of foreign investments by the government in order to safeguard their security and public interests. Such sectors are defence, nuclear, power generation etc. Moreover some sectors are solely controlled by the government such as Railways.

Other Players: If other big players are already present in a market then such a market will experience new investments rarely. Because of high competition and entry barriers.