Chapter Two

International Business Environment

• Due globalization world economies have been
shifted towards more integrated and interdependent
(national economies are merging into an
interdependent global economic system.

• IB-operate in different countries with different

cultures, political, economic systems, and are at
different levels of economic development that
makes Global Business environment more complex.

• Thus, keeping track of IB environment is very

essential while undertaking business activities
• The emerging global economy creates
opportunities as well as presents challenges and
threats to the business.
• International business environment are classified
as:
-Micro environment
-Macro environment
• Micro environment -can be defined as the forces in the firm’s
immediate environment which directly influence the firm’s
decisions and operations.

 These include suppliers, various market intermediaries and

service organizations such as middlemen, transporters,
advertising and marketing research agencies, competitors
customers and general public.
1.Competitors
• Competition is what keeps the firm thriving/flourishing.
Competitors are the rival sellers operating in the same
industry. It must be noted that the nature and intensity
of competition highly influence the firm’s products and
services. Product Differentiation is something that helps
the firm to beat the cut-throat competition in the market.
 Contd…

• For a firm to survive competition it is required to keep a

close watch on the competitors (both existing and
potential) future moves and actions, so as to prepare in
advance, as well as to predict the response of competitors
to company’s moves.
• Moreover, competitor analysis also helps in maintaining or
improving market share and position.
2. Suppliers
• Suppliers are the one who provides inputs such as
material, components, labour and other stock of goods to
the firm, which is required to undertake manufacturing
activities.
• when there is uncertainty as to the supply constraints, it
usually builds pressure on the firms and they are required
to maintain high inventories, which leads to cost
 Contd..
• Suppliers have the power to change the firm’s
position in the market and its capabilities.
• Customers
• The success of the organization greatly depends on
how effectively the firm fulfils the needs and wants
of the customers, which is profitable to the firm and
also provides value to the customer.
• The firm needs to analyze what the customers
expect from their products and services so that the
firm can satisfy them.(Tests preferences wants etc)
• It must be noted that without customers no
business can survive for a long time.
• So, the primary objective of the firm is to create
 Contd
• Intermediaries
• Intermediaries refer to marketing intermediaries which cover
agents, merchants, distributors, dealers, wholesalers, etc.
that participate in the company’s supply chain, in stocking
and transporting and selling the goods from their source
location to their destination.
• It acts as a link between the business organization and the
ultimate consumer.
• Shareholders
• Shareholders are the real owners of the company who invest
their money in the company’s business, by purchasing the
shares, for which they are paid a dividend every year as a
return.
• Shareholders have the right to vote in the company’s
general meeting. Decisions such as co. Dividends,
expansions, Shutting down etc
• Macro environment- remote env’t- consists of
broader forces which affect the firm as well as the
other forces in the firm’s micro environment.
• These include factors such as political, legal,
economic, Technological and social etc.

• Firms need to continuously monitor changes in

these environmental forces and devise strategies
to cope with them.
COMPONENTS OF INTERNATIONAL/Global BUSINESS
ENVIRONMENT
 Political /Legal environment
 Economic environment
 Socio-cultural environment
 Technological environment
 Global environment
 Demographic environment
 POLITICAL ENVIRONMENT
The Political/Legal Segment- It refers to the influence
exerted by three political institutions namely the legislature,
the executive and the judiciary in developing and controlling
business activities.

• Business decisions are greatly influenced by the

developments in the political environment.

• A change in the government brings about a change in

attitude, preference, objectives etc.
• For instance, Trump tax reform 2018 on washing machines,
aluminum and steel etc (US loss 10 trillion dollar in ten years.
Ethiopia’s Govt Devaluation Policy and its effect on import and
currency.
• Business firms need to keep a track of all political
events, anticipate changes in government policies
and frame production and marketing strategies
accordingly.

• Because of the influence that this segment can

have on the nature of competition as well as on the
overall profitability of industries and individual
firms, analysts must assess changes and trends in
administration philosophies regarding:
• Risks Related to Government Trade policies:
– Tariffs or taxes,
– exchange-rate controls,
– Quotas (usually to regulate volume of trade between countries)
– export/import license requirements,
– other trade barriers like embargos (official ban),
sanctions (penalty for disobeying a law or rule)..
 Economic Environment

• It refers all factors which have economic impact on the

business .
• Analysts must scan, monitor, forecast, and assess a number of
key economic indicators or elements, including levels and
trends of
Inflation rates and interest rates
Trade deficits and surpluses
budget deficits and surpluses
Stages of economic development
Consumption pattern (Demand Analysis)
Economic system
personal savings rates
Business savings rates
Per capita income
 The Socio-cultural Environment
The Socio-cultural Segment-is concerned with different
societies’ social attitudes and cultural values.
• Every society has a culture of its own.
• Culture includes knowledge, belief, morals, laws,
customs and other capabilities and habits acquired by an
individual as a member of society.

• Cultural values are passed on from one generation to

another.
• Culture thus determines the types of goods and services a
business should produce.
• Business should realize the cultural differences and bring
out products accordingly.
• Culture is also defined as a society’s
personality.

• Culture
– Has a general influence on consumption
– Has an influence on the stakeholders
– Determines the manner in which individuals
respond to Marketing strategies
• International business operates in a cross cultural
environment.

• This makes the business more complex because

the business firm must appreciate how different
the foreign culture is from their own and how this
difference is to be reflected in their business
strategies.
 The Technological Environment

The Technological Segment- Technology is the

systematic application of scientific or other
organized knowledge to practical tasks.

• Technological advancement makes it possible to

improve the quality of products, increase the output
and decrease the cost of product.

• Technological changes are rapid and to keep pace

with it, businessmen need to be alert and flexible in
order to quickly incorporate them in their business
organization so as to survive and succeed in the
• Dynamic change of Technologies
• New product development
• New organizational styles
• New management techniques
• New marketing techniques
• New production techniques
• Networks, warehouse management, electronic
data interchange (EDI)
• Web/Internet
• The technological segment-includes creating
new knowledge and translating that knowledge
into new outputs, products, processes, and
materials.

• Firms should pay careful attention to the

technological segment, since early adopters
can gain market share and above average
returns.
 The Demographic Environment
The Demographic Segment- is concerned with a
population’s size, age structure, geographic
distribution, ethnic mix, and distribution of
income.
i)Population Size
• While population size itself may be important to
firms that require a “critical mass” of potential
customers.
• One of the most important changes in a population’s
size is changes in a nation’s birth rate and/or family
size.
ii) Age Structure- Changes in a nation’s birth rate or
life expectancy can have important implications for firms.

Are people living longer?

What is the life expectancy of infants?
These will impact the health care system (and firms
serving that segment) and the development of products
and services targeted to an older (or younger) population.
• An aging population tends to lower labor-force
participation and savings rates
(iii) Geographic Distribution: Population shifts from
one region of a nation to another or from non-
metropolitan to metropolitan areas may have an
impact on a company's strategic competitiveness.
• Issues that should be considered include:
Companies may have to consider relocation if
population shifts have a significant impact on the
availability of a qualified workforce.
The concepts of working-at-home and commuting
electronically on the information. These may imply
changes in recruiting and managing the workforce.
iv) Ethnic Mix
• This reflects the changes in the ethnic make-up of a
population and has implications both for a firm’s
potential customers and for the workforce.
• Issues that should be addressed include:
Will new products and services be demanded or can
existing ones be modified?
How will changes in the ethnicity of a population
affect the composition of the workforce?
Are managers prepared to manage a more culturally
diverse workforce?
How can the firm position itself to take advantage of
v) Income Distribution
• Changes in income distribution are important
because changes in the levels of individual and
group purchasing power and discretionary
income(available for use) often result in changes
in spending (consumption) and savings patterns.

• Tracking, forecasting, and assessing changes in

income patterns may identify new opportunities
for firms.
 The Global Environment
The Global Segment- In the 21st-century
competitive landscape requires that firms also
must analyze global factors. Among the global
factors that should be assessed are:
The potential impact of significant international
events such as peace in the Middle East.
WTO principles
The identification of both important emerging
global markets and global markets that are
changing.
• The differences between cultural and institutional
attributes of individual global markets (the focus
in Korea on inhwa, or harmony, based on respect
for hierarchical relationships and obedience to
authority; the focus in China on guanxi, or
personal relationships; the focus in Japan on wa,
or group harmony/social cohesion)
• Global market expansion opportunities
• The opportunities to learn from doing business in
other countries