How does the home country environment influence foreign business operations of a firm?

Business operations of a firm are a bye-product of the domestic environment. It is true with domestic business operations as well as foreign business operations. Foreign business operations of a firm are greatly influenced by home country or domestic environment. These environmental factors are many in numbers and in various form. Some of these factors are totally static while other factors are dynamic they are changing every now and then. Hence, country environment consists of factors listed are:

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

The above mentioned factors are dynamic and are undergoing fast and significant changes. Home country’s environment may act either as a stimulant or as a constraint for foreign business operations. If the prevailing economic climate is favorable to business growth, there will be more foreign business operations.

Similarly, if there is lack of demand for a firm’s products in the domestic market, the firm will like to explore the possibility for exporting the product. If there is . intense competition in the home market, the management of firm may formulate a strategy to go for foreign business operations. Export promotion measures and incentives in the country motivate the firms to involve in the foreign business operations.

Business management is encouraged to produce more and export more when the government pays it a subsidy. Sometimes a government puts constraint on foreign business operations by imposing a high tax rate on foreign business operations. As a result of economic reforms, globalization and liberalization have become basic factors of government policy. This has influenced more and more foreign direct investment in India.

Further, many multinationals like Samsung Electronics, Whirlpool etc. have started their business operations in India. A firm dealing in foreign business operations cannot ignore the pattern of demand and supply of its product in the domestic market. The rising domestic consumption of cotton textiles, tea, coffee, vegetable oils etc. has resulted in lesser exports because profit margins on domestic sales have risen considerably in relation to export sales and this has worked as a disincentive to export.

Increased domestic demand and high rate of inflation act as disincentive to export activities. The export controls introduced by home country’s government and export duties levied also contribute to fall in exports. In general, every business firm will like to maximize its profit by expanding its activities to foreign markets. But foreign business operations are subject to great risk. The government policy has to be conducive for foreign business operations.

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