Factors Constituting the International Business Environment.

International business environment consists of a number of micro level and macro level factors operating at domestic level, foreign level and global level. Accordingly various factors constituting business environment may be grouped as under:

  • Domestic Environment.
  • Foreign Environment.
  • Global Environment.

Domestic Environment.

Domestic environment means the environmental actors and forces existing and operating at national level. Domestic environment includes economic, financial, political legal, and technological factors operating within the political boundary of a country. Domestic environment affects firm’s domestic as well as international business. Domestic environment of international business consists of the following:

  • Competitive structure,
  • Economic climate,
  • Political and legal forces.

Business firms are generally familiar with the factors constituting domestic environment. Therefore, business firms are in a position to adapt itself to them. For example, if there is lack of demand for a firm’s products or there is intense competition in the domestic market, the firm may formulate a strategy to go for international business. Similarly, if the government offers incentives for exports, the firms may like to go for exporting.

Foreign Environment.

Foreign environment means the factors and forces operating in a foreign country or countries with whom a firm in domestic economy wants to have international business. Foreign environment consists of the following:

  • Geographic environment,
  • Ecological environment,
  • Legal environment,
  • Political environment,
  • Socio-cultural environment,
  • Economic and Financial environment.

Since foreign environment is related to foreign country or countries. Firms in domestic economy may not be fully aware of factors constituting foreign environment. Foreign environment offers a number of opportunities but with some constraints.

Hence, a business firm should carefully analyze the foreign environment. If a firm intends to operate in number of foreign markets the problem of analyzing foreign environment becomes more complicated because the environment prevailing in one country is generally not the same in another country. As a result, strategies adopted for one foreign market may not give same results in second foreign market. Since most of the factors constituting foreign environment are dynamic. A firm has to be careful in monitoring the changes in foreign environment.

Global Environment.

Global environment means the factors operating on worldwide basis or regional basis. Global environment is not confined to just one country but entire world or a group of countries. Hence, the impact of global environment is visible in a home country as well as foreign countries. Global environment consists of following factors and forces:

International economic conditions like worldwide economic recession.

International financial institutions and system like international financial liquidity or stability, International Monetary Fund and World Bank.

International Trade organizations and agreements like World Trade Organization (WTO), United Nations Conference on Trade and Development (UNCTAD), Agreement on Textiles and Clothing (ATC), Generalized System of Preferences (GSP), International Commodity Agreements.

Regional economic groups and agreement like European Union (EU), North American Free Trade Association (NAFTA) and Association of South East Asian Nations (ASEAN).

The various factors constituting international business environment may be shown as under:

Explain the Factors constituting the International Business Environment.

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