An Overview Of International Business

INTRODUCTION

One of the most dramatic and significant world trends in the past two decades has been the rapid sustained growth of international business. Markets have become truly global for most goods, many services, and especially for financial instruments of all types. World product trade has expanded by more than 6 percent a year since 1950, which is more than 50 percent faster than growth of output the most dramatic increase in globalization, has occurred in financial markets. In the global forex markets, billions of dollars are transacted each day, of which more than 90 percent represent financial transactions unrelated to trade or investment. Much of this activity takes place in the so-called Euromarkets, markets outside the country whose currency is used.

This pervasive growth in market interpenetration makes it increasingly difficult for any country to avoid substantial external impacts on its economy. In particular massive capital flows can push exchange rates away from levels that accurately reflect competitive relationships among nations if national economic policies or performances diverse in short run.

The rapid dissemination rate of new technologies speeds the pace at which countries must adjust to external events. Smaller, more open countries, long ago gave up illusion of domestic policy autonomy. But even the largest and most apparently self-contained economies, including the US, are now significantly affected by the global economy. Global integration in trade, investment, and factor flows, technology, and communication has been tying economies together. Why then are these changes coming about, and what exactly are they? It is in practice, easier to identify the former than interpret the latter. The reason is that during the past few decades, the emergence of corporate empires in the world economy, based on the contemporary scientific and technological developments, has led to globalization of production. As a result of international production,

Co-operation among global productive units, the large-scale capital exports, and “the export of production”or“production abroad has come into prominence as against commodity export in world economy in recent years. Global corporations consider the whole of the world their production place, as well as their market and move factors of production to wherever they can optimally be combined. They avail fully of the revolution that has brought about instant

Worldwide communication, and near instant-transformation. Their ownership is transnational; their management is transnational. Their freely mobile management, technology and capital, the modern agent for stepped-up economic growth, transcend individual national boundaries. They are domestic in every place, foreign in none-a true corporate citizen of the world. The greater

interdependence among nations has already reduced economic insularity of the

peoples of the world, as well as their social and political insularity.

DEFINITION OF INTERNATIONAL BUSINESS:

International business includes any type of business activity that crosses national borders. Though a number of definitions in the business literature can be found but no simple or universally accepted definition exists for the term international business. At one end of the definitional spectrum, international business is defined as organization that buys and/or sells goods and services across two or more national boundaries, even if management is located in a single country. At the other end of the spectrum, international business is equated only with those big enterprises, which have operating units outside their own country. In the middle are institutional arrangements that provide for some managerial direction of economic activity taking place abroad but stop short of controlling ownership of the business carrying on the activity, for example joint ventures with locally owned business or with foreign governments. In its traditional form of international trade and finance as well as its newest form of multinational business operations, international business has become massive in scale and has come to exercise a major influence over political, economic and social from many types of comparative business studies and from knowledge of many aspects of foreign business operations.

In fact, sometimes the foreign operations and the comparative business are used as synonymous for international business. Foreign business refers to domestic operations within a foreign country. Comparative business focuses on similarities and differences among countries and business systems for focuses on similarities and differences among countries and business operations and comparative business as fields of enquiry do not have as their major point of interest the special problems that arise when business activities cross national boundaries. For example, the vital question of potential conflicts between the nation-state and the multinational firm, which receives major attention is international business, is not like to be centered or even peripheral in foreign operations and comparative business.

SCOPE OF INTERNATIONAL BUSINESS ACTIVITIES

The study of international business focus on the particular problems and opportunities that emerge because a firm is operating in more than one country. In a very real sense, international business involves the broadest and most generalized study of the field of business, adapted to a fairly unique across the border environment. Many of the parameters and environmental variables that is very important in international business (such as foreign legal systems,

foreign exchange markets, cultural differences, and different rates of inflation) are either largely irrelevant to domestic business or are so reduced in range and complexity as to be of greatly diminished significance.

Thus, it might be said that domestic business is a special limited case of international business. The distinguishing feature of international business is that international firms operate in environments that are highly uncertain and where the rules of the game are often ambiguous, contradictory, and subject to rapid change, as compared to the domestic environment. In fact, conducting international business is really not like playing a whole new ball game, however, it is like playing in a different ballpark, where international managers have to learn the factors unique to the playing field.

Managers who are astute in identifying new ways of doing business that satisfy the changing priorities of foreign governments have an obvious and major competitive advantage over their competitors who cannot or will not adapt to these changing priorities. The guiding principles of a firm engaged in (or commencing) international business activities should incorporate a global perspective. A firm’s guiding principles can be defined in terms of three board categories products offered/market served, capabilities, and results. However, their perspective of the international business is critical to understand the full meaning of international business. That is, the firm’s senior management should explicitly define the firm’s guiding principles in terms of an international mandate rather than allow the firm’s guiding principles in terms as an incidental adjunct to its domestic activities. Incorporating an international outlook into the firm’s basic statement of purpose will help focus the attention of managers (at all levels of the organization) on the opportunities (and hazards) outside the domestic economy.

It must be stressed that the impacts of the dynamic factors unique to the playing field for international business are felt in all relevant stages of evolving and implementing business plans. The first broad stage of the process is to formulate corporate guiding principles. As outlined below the first step in formulating and implementing a set of business plans is to define the firm’s guiding principles in the market place. The guiding principles should, among other things, provide a long-term view of what the firm is striving to become and provide direction to divisional and subsidiary manager’s vehicle, some firms use “the decision circle” which is simply an interrelated set of strategic choices forced upon any firm faced with the internationalization of its markets.

These choices have to do with marketing, sourcing, labor, management, ownership, Finance, law, control, and public affairs. Here the first two marketing and sourcing-constitute the basic strategies that encompass a firm’s initial considerations. Essentially, management is answering two questions: to whom are we going to sell what, and from where and how will we supply that market? We then have a series of input strategies-labor, management, ownership, and financial. They are in their efforts to develop their own business plans. As an obligation addressed essentially to the query, with what resources are we going to implement the basic strategies? That is, where will we find the right people, willingness to carry the risk, and the necessary funds?

A third set of strategies legal and control-respond to the problem of how the firm is to structure itself of implement the basic strategies, given the resources it can muster. A final strategic area, public affairs, is shown as a basic strategy simply because it places a restraint on all other strategy choices. Each strategy area contains a number of subsidiary strategy options. The decision process that normally starts in the marketing strategy area is an iterative one. As the decision maker proceeds around the decision circle, previous selected strategies must be readjusted. Only a portion of the possible feedback adjustment loops is shown here.

Although these strategy areas are shown separately but they obviously do not stand-alone.

There must be constant reiteration as one moves around the decision circle. The sourcing obviously influences marketing strategy, as well as the reverse. The target market may enjoy certain preferential relationships with other markets. That is, everything influences everything else. In as much as the number of options a firm faces is multiplied as it moves into international market, decision-making becomes increasingly complex the deeper the firm becomes involved internationally. One is dealing with multiple currency, legal, marketing, economic, political, and cultural systems.

Geographic and demographic factors differ widely. In fact, as one moves geographically, virtually everything becomes a variable: there are few fixed factors. For our purposes here, a strategy is defined as an element in a consciously devised overall plan of corporate development that, once made and implemented, is difficult (i.e. costly) to change in the short run. By way of contrast, an operational or tactical decision is one that sets up little or no institutionalized resistance to making a different decision in the near future .

Some theorists have differentiated among strategic, tactical, and operational ,with the first being defined as those decisions, that imply multi-year commitments; a tactical decision, one that can be shifted in roughly a year’s time; an operational decision, one subject to change in less than a year. In the international context, we suggest that the tactical decision, as the phrase is used here, is elevated to the strategic level because of the rigidities in the international environment not present in the purely domestic-for example, work force planning and overall distribution decisions. Changes may be implemented domestically in a few months, but if one is operating internationally, law, contract, and custom may intervene to render change difficult unless

implemented over several years.

SPECIAL DIFFICULTIES IN INTERNATIONAL BUSINESS

What make international business strategy different from the domestic are the

differences in the marketing environment. The important special problems in

international marketing are given below:

1. POLITICAL AND LEGAL DIFFERENCES

The political and legal environment of foreign markets is different from that of the domestic. The complexity generally increases as the number of countries in which a company does business increases. It should also be noted that the political and legal environment is not the same in all provinces of many home markets. For example, the political and legal environment is not exactly the same in all the states of India.

2. CULTURAL DIFFERENCES

The cultural differences, is one of the most difficult problems in international marketing. Many domestic markets, however, are also not free from cultural diversity.

3. ECONOMIC DIFFERENCES

The economic environment may vary from country to country.

4. DIFFERENCES IN THE CURRENCY UNIT

The currency unit varies from nation to nation. This may sometimes cause problems of currency convertibility, besides the problems of exchange rate fluctuations. The monetary system and regulations may also vary.

5. DIFFERENCES IN THE LANGUAGE

An international marketer often encounters problems arising out of the differences in the language. Even when the same language is used in different countries, the same words of terms may have different meanings. The language problem, however, is not something peculiar to the international marketing. For example: the multiplicity of languages in India.

6. DIFFERENCES IN THE MARKETING INFRASTRUCTURE

The availability and nature of the marketing facilities available in different countries may vary widely. For example, an advertising medium very effective in one market may not be available or may be underdeveloped in another market.

7. TRADE RESTRICTIONS

A trade restriction, particularly import controls, is a very important problem,

which an international marketer faces.

8. HIGH COSTS OF DISTANCE

When the markets are far removed by distance, the transport cost becomes high and the time required for affecting the delivery tends to become longer. Distance tends to increase certain other costs also.

9. DIFFERENCES IN TRADE PRACTICES

Trade practices and customs may differ between two countries.

BENEFITS OF INTERNATIONAL BUSINESS SURVIVAL

Because most of the countries are not as fortunate as the United States in terms of market size, resources, and opportunities, they must trade with others to survive; Hong Kong, has historically underscored this point well, for without food and water from china proper, the British colony would not have survived along. The countries of Europe have had similar experience, since most

European nations are relatively small in size. Without foreign markets, European firms would not have sufficient economies of scale to allow them to be competitive with US firms. Nestle mentions in one of its advertisements that its own country, Switzerland, lacks natural resources, forcing it to depend on trade and adopt the geocentric perspective. International competition may not be matter of choice when survival is at stake. However, only firms with previously substantial market share and international experience could expand successfully.

GROWTH OF OVERSEAS MARKETS

Developing countries, in spite of economic and marketing problems, are excellent markets. According to a report prepared for the U.S. CONGRESS by the U.S. trade representative, Latin America and Asia/Pacific are experiencing the strongest economic growth. American markets cannot ignore the vast potential of international markets. The world is more than four times larger than the U.S. market. In the case of Amway corps. A privately held U.S.

Manufacturer of cosmetics, soaps and vitamins, Japan represents a larger market

Than the United States.

SALES AND PROFIT

Foreign markets constitute a larger share of the total business of many firms that have wisely cultivated markets aboard. Many large U.S. companies have done well because of their overseas customers. IBM and Compaq, foe ex, sell more computers aboard than at home. According to the US dept of commerce, foreign profits of American firms rose at a compound annual rate of 10%

Between 1982 and 1991, almost twice as fast as domestic profits of the same companies.

DIVERSIFICATION

Demand for mast products is affected by such cyclical factors as recession and such seasonal factors as climate. The unfortunate consequence of these variables is sales fluctuation, which can frequently be substantial enough to cause layoffs of personnel. One way to diversify a companies’ risk is to consider foreign markets as a solution for variable demand. Such markets,

Even out fluctuations by providing outlets for excess production capacity. Cold weather, for instance may depress soft drink consumption. Yet not all countries enter the winter season at the same time, and some countries are relatively warm year round. Bird, USA, inc., a Nebraska manufacturer of go carts, and mini cars, for promotional purposes has found that global selling has enabled the company to have year round production. It may be winter in Nebraska but its summer in the southern hemisphere-somewhere there is a demand and that stabilizes the business.

INFLATION AND PRICE MODERATION

The benefits of export are readily self-evident. Imports can also be highly beneficial to a country because they constitute reserve capacity for the local economy. Without imports, there is no incentive for domestic firms to moderate their prices. The lack of imported product alternatives forces consumers to pay more, resulting in inflation and excessive profits for local firms. This

Development usually acts a s prelude to workers demand for higher wages, further exacerbating the problem of inflation. Import quotas imposed on Japanese automobiles in the 1980’s saved 46200 US production jobs but at a cost of $160,000 per job per year. This cost was a result

 of the addition of $400 to the prices of US cars, and $1000 to the prices of Japanese imports. This windfall for Detroit resulted in record high profits for US automakers. Not only do trade restrictions depress price competition in the short run, but they also can adversely affect demand for year to come.

EMPLOYMENT

Trade restrictions, such as high tariffs caused by the 1930’s smoot-hawley bill, which forced the average tariff rates across the board to climb above 60%, contributed significantly to the great depression and have the potential to cause wide spread unemployment again. Unrestricted trade on the other hand improves the world’s GNP and enhances employment generally for all nations. Importing products and foreign ownership can provide benefits to a nation. According to the institute for international Economics-a private, non- profit research institute – the growth of foreign ownership has not resulted in a loss of jobs for Americans; and foreign firms have paid their American workers the same, as have domestic firms.

STANDARDS OF LIVING

Trade affords countries and their citizen’s higher standards of living than other wise possible. Without trade, product shortages force people to pay more for less, products taken for granted, such as coffee and bananas may become unavailable overnight. Life in most countries would be much more difficult were it not for the many strategic metals that must be imported. Trade also

Makes it easier for industries to specialize and gain access to raw materials, while at the sometime fostering competition and efficiency. A diffusion of innovations across national boundaries is useful by-products of international trade. A lack of such trade would inhibit the flow innovative ideas.

FRAMEWORK FOR ANALYSING INTERNATIONAL BUSINESS ENVIRONMENT

Environmental analysis is defined as “the process by which strategists monitor the economic, governmental/legal, market/competitive, supplier/technological, geographic, and social settings to determine opportunities and threats to their firms”.

 STANDARDS OF LIVING

Trade affords countries and their citizen’s higher standards of living than otherwise possible. Without trade, product shortages force people to pay more for less, products taken for granted, such as coffee and bananas may become unavailable overnight. Life in most countries would be much more difficult were it not for the many strategic metals that must be imported. Trade also

makes it easier for industries to specialize and gain access to raw materials, while at the same time fostering competition and efficiency. A diffusion of innovations across national boundaries is useful by-products of international trade. A lack of such trade would inhibit the flow innovative ideas.

FRAMEWORK FOR ANALYSING INTERNATIONAL BUSINESS ENVIRONMENT

Environmental analysis is defined as “the process by which strategists monitor the economic, governmental/legal, market/competitive, supplier/technological, geographic, and social settings to determine opportunities and threats to their firms”. “Environmental diagnosis consists of managerial decisions made by analyzing the significance of the data (opportunities and threats) of the environmental analysis”. The definition of environmental analysis given above has been made in the context of the strategic management process for an existing firm. It is, however,

Quite obvious that environmental analysis is the cornerstone of new business opportunity analysis too. Indeed, today a much greater emphasis is given than in the past to the fact that environmental analysis is an essential prerequisite for strategic management decision-making. For instance, in his recent editions of Marketing Management, Philip Kotler, the world-renowned professor and author, describes Marketing Environment Audit as the first component of a Marketing Audit, whereas in the earlier editions of this book, the definition of Marketing Audit does not have any reference to the environment. It is now unquestionably accepted that the prospects of a business depend not only on its resources but also on the environment. An analysis of the strengths, weaknesses, opportunities and threats (SWOT) is very much essential for the

business policy formulation. Just as the life and success of an individual depend on his innate capability, including physiological factors, traits and skills, to cope with the environment,

the survival and success of a business firm depend on its innate strength – the resources as its command, including physical resources, financial resources, skill and organization – and its adaptability to the environment. Every business enterprise, thus, consists of a set of internal factors and is confronted with a set of external factors. The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organization and functional means, such as the marketing mix, to suit the environment. The external factors, on the other hand, are by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors, geophysical

factors etc. are, therefore, generally regarded as uncontrollable factors. As the environmental factors are beyond the control of a firm, its success will depend to a very large extent on its adaptability to the environment, i.e. its ability to properly design and adjust the internal (the controllable) variables to take advantage of the opportunities and to combat the threats in the

environment.

The business environment comprises a microenvironment and a macro

environment.

MICRO ENVIRONMENT

“The micro environment consists of the actors in the company’s immediate environment” that effect the performance of the company. These include the suppliers, marketing intermediaries, competitors, customers, and publics. “The macro environment consists of the larger societal forces that affect all the actors in the company’s micro environment namely, the demographic, economic, natural, technological, political and cultural forces”. It is quite obvious that the micro environmental factors are more intimately linked with the company than the macro factors. The micro forces need not necessarily affect all the firms in a particular industry in the same way. Some of the micro factors may be particular to a firm. For example, a firm, which depends on a supplier, may have a supplier environment, which is entirely different from that of a firm whose supply source is different. When competing firms in an industry have the same microelements, the relative success of the firms depends on their relative effectiveness in dealing with these elements.

Suppliers

An important force in the microenvironment of a company is the supplier, i.e., those who supply the inputs like raw materials and components to the company.The importance of reliable source/sources of supply to the smooth functioning of the business is obvious. Uncertainty regarding the supply or other supply constraints often compels companies to maintain high inventories causing cost increases. It has been pointed out that factories in India maintain indigenous stocks of 3-4 months and imported stocks of 9 months as against an average of a

few hours to two weeks in Japan. Because of the sensitivity of the supply, many companies give high importance to vendor development. Vertical integration, where feasible, helps solve the

supply problem. It is very risky to depend on a single because a strike, lock out or any other

production problem with that supplier may seriously affect the company. Similarly, a change in the attitude or behavior of the supplier may also affect the company. Hence, multiple sources of supply often help reduce such risks. The supply management assumes more importance in a scarcity environment. “Company purchasing agents are learning how to “wine and dine” suppliers to obtain favorable treatment during periods of shortages. In other words, the

purchasing department might have to “market” itself to suppliers”.

CUSTOMERS

As it is often, exhorted, the major task of a business is to create and sustain customers. A business exists only because of its customers. Monitoring the customer sensitivity is, therefore, a prerequisite for the business success. A company may have different categories of consumers like individuals, households, industries and other commercial establishments, and government

and other institutions. For example, the customers of a tyre company may If the consumer decides to go in for a T.V. the next question is which form of the T.V. – black and white or colour, with remote-control or without it etc. In other words, there is a product form competition. Finally the consumer encounters the brand competition i.e., the competition between the different brands of the same product form. An implication of these different demands is that a marketer should strive to create primary and selective demand for his products.

MARKETING INTERMEDIARIES

The immediate environment of a company may consist of a number of marketing intermediaries which are “firms that aid the company in promoting, selling and distributing its goods to final buyers”. The marketing intermediaries include middlemen such as agents and merchants

who “help the company find customers or close sales with them”, physical distribution firms which “assist the company in stocking and moving goods form their origin to their destination” such as warehouses and transportation firms; marketing service agencies which “assist the company in targeting and promoting its products to the right markets” such as advertising agencies, marketing research firms, media firms and consulting firms; and financial intermediaries which finance marketing activities and insure business risks. Marketing intermediaries are vital links between the company and the final consumers. A dislocation or disturbance of this link, or a wrong choice of the link, may cost the company very heavily. Retail chemists and druggists in India once decided to boycott the products of a leading company on some issue such as poor retail margin. This move for collective boycott was, however, objected

to by the MRTP commission; but for this company would, perhaps, have been in

trouble.

DEMOCRATIC

A company may encounter certain publics in its environment. “A public is any

group that has an actual or potential interest in or impact on an organization’s

ability to achieve its interests. Media publics, citizen’s action publics and local

publics are some examples. For example, one of the leading companies in India was frequently under attack by the media public, particularly by a leading daily, which was allegedly bent on bringing down the share prices of the company by tarnishing its image. Such exposures or campaigns by the media might even influence the government decisions affecting the company. The local public also affects many companies. Environmental pollution is an issue often taken up by a number of local publics. Actions by local publics on the issue have caused some companies to suspend operations and/or take pollution abatement measures.

GROWTH OF CONSUMER PUBLIC IS AN IMPORTANTDEVELOPMENT AFFECTING BUSINESS.

It is wrong to think that all publics are threats to business. Some of the actions of the publics may cause problems for companies. However, some publics are an opportunity for the business. Some businessmen, for example, regard consumerism as an opportunity for the business. The media public may be used to disseminate useful information. Similarly, fruitful cooperation between a

company and the local publics may be established for the mutual benefit of the company and the local community.

MACRO ENVIRONMENT

As stated earlier, a company and the forces in its microenvironment operate in a larger macro environment of forces that shape opportunities and pose threats to the company. The macro forces are, generally, more uncontrollable than the micro forces. A sketch picture of the important macro-environmental forces is given below.

ECONOMIC ENVIRONMENT - Economic conditions, economic policies and the economic system are the important external factors that constitute the economic environment of a

business. The economic conditions of a country-for example, the nature of the economy,

the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, etc- are among the very important determinants of business strategies. In a developing country, the low income may be the reason for the very low

demand for a product. The sale of a product for which the demand is income elastic naturally increases with an increase in income. But a firm is unable to increase the purchasing power of the people to generate a higher demand for its product. Hence, it may have to reduce the price of the product to increase the sales. The reduction in the cost of production may have to be effected to facilitate price reduction. It may even be necessary to invent or develop a new low-cost product to suit the low-income market. Thus Colgate designed a simple, hand-driven, inexpensive ($10) washing machine for low-income buyers in less developed countries. Similarly, the National Cash Register Company took an innovative step backward by developing a crank-operated cash register that would sell at half the cost of a modern cash register and this was well received in a number of developing countries. In countries where investment and income are steadily and rapidly rising, business prospects are generally bright, and further investments are encouraged. There are a number of economists and businessmen who feel that the developed countries are no longer worthwhile propositions for investment because these

economies have reached more or less saturation levels in certain respects. In developed economies, replacement demand accounts for a considerable part of the total demand for many consumer durables whereas the replacement demand is negligible in the developing economies.

The economic policy of the government, needless to say, has a very great impact on business. Some types or categories of business are favorably affected by government policy, some adversely affected, while it is neutral in respect of others. For example, a restrictive import policy, or a policy of protecting the home industries, may greatly help the import-competing industries. Similarly, an industry that falls within the priority sector in terms of the

government policy may get a number of incentives and other positive support

from the government, whereas those industries which are regarded as inessential

may have the odds against them.

In India, the government’s concern about the concentration of economic power restricted the role of the large industrial houses and foreign concerns to the core sector, the heavy investment sector, the export sector and backward regions. The monetary and fiscal policies, by the incentives and disincentives they offer and by their neutrality, also affect the business in different ways. An industrial undertaking may be able to take advantage of external economies by locating itself in a large city; but the Government of India’s policy was to discourage industrial location in such places and constrain or persuade industries undertaking, a backward area location may have many disadvantages. However, the incentives available for units located in these backward areas many compensate them for these disadvantages, at least to some extent. According to the industrial policy of the Government of India until July 1991, the development of 17 of the most important industries were reserved for the state. In the development of another 12 major industries, the state was to play a dominant role. In the remaining industries, co-operative enterprises, joint sector enterprises and small scale units were to get preferential treatment over large entrepreneurs in the private sector. The government policy, thus limited the scope of private business. However, the new policy ushered in since July 1991has wide opened many of the industries for the private sector.The scope of international business depends, to a large extent, on the economicsystem. At one end, there are the free market economies or capitalist

economies, and at the other end are the centrally planned economies or communist countries. In between these two are the mixed economies. Withinthe mixed economic system itself, there are wide variations.

The freedom of private enterprise is the greatest in the free market economy,

which is characterized by the following assumptions:

(i) The factors of production (labor, land, capital) are privately owned,

and production occurs at the initiative of the private enterprise.

(ii) Income is received in monetary form by the sale of services of the

factors of production and from the profits of the private enterprise.

(iii) Members of the free market economy have freedom of choice in so

far as consumption, occupation, savings and investment are

concerned.

(iv) The free market economy is not planned controlled or regulated by

the government. The government satisfies community or collective

wants, but does not compete with private firms, nor does it tell the

people where to work or what to produce.

The completely free market economy, however, is an abstract system rather than a real one. Today, even the so-called market economies are subject to a number of government regulations. Countries like the United States, Japan, Australia, Canada and member countries of the EEC are regarded as market economies. The communist countries have, by and large, a centrally planned economic system. Under the rule of a communist or authoritarian socialist government, the state owns all the means of production, determines the goals of production and controls the economy according to a central master plan. There is hardly any consumer sovereignty in a centrally planned economy, unlike in the free market economy. The consumption pattern in a centrally planned economy is dictated by the state. China, East Germany Soviet Union, Czechoslovakia, Hungary, Poland etc., had centrally planned economies. However, recently several of these countries have discarded communist system and have moved towards the market economy. In between the capitalist system and the centrally planned system falls the system of the mixed economy, under which both the public and private sectors co-exist, as in India. The extent of state participation varies widely between the mixed economies. However, in many mixed economies, the strategic and other nationally very important industries are fully owned or dominated by the state. The economic system, thus, is a very important determinant of the scope of private business. The economic system and policy are, therefore, very important external constraints on business.

POLITICAL AND LEGAL ENVIRONMENT

Political and government environment has close relationship with the economic system and economic policy. For example, the communist countries had a centrally planned economic system. In most countries, apart from those laws that control investment and related matters, there are a number of laws that regulate the conduct of the business. These laws cover such matters as standards of products, packaging, promotion etc. In many countries, with a view to protecting consumer interests, regulations have become stronger. Regulations to protect the purity of the environment and preserve the ecological balance have assumed great importance in many countries. Some governments specify certain standards for the products (including

packaging) to be marketed in the country; some even prohibit the marketing ofcertain products. In most nations, promotional activities are subject to various types of controls. Media advertising is not permitted in Libya. Several European countries restrain the use of children in commercial advertisements. In a number of countries, including India, the advertisement of alcoholic liquor

is prohibited. Advertisements, including packaging, of cigarettes must carry the statutory warning that “cigarette smoking is injurious to health”. Similarly, advertisements of baby food must necessarily inform the potential buyer that breast-feeding in the best. In countries like Germany, product comparison advertisements and the use of superlatives like ‘best’ or ‘excellent’ in advertisements is not allowed In the United States, the Federal Trade

Commission is empowered to require a company to provide the quality, performance or comparative prices of its products. “What is being asked of the drug industry and of American business in general is a fuller disclosure of the relevant facts about products. For drugs, food

Additives, some cosmetic preparations, and so forth, a full disclosure requires more knowledge of the long-range side effects of materials ingested into the complex human body. For American industry as a whole, greater candour has been called for under such legislation as Truth in Lending and Fair Packaging Act, under administrative decrees such as the warning requirement on cigarette packages and advertising, under the threats of private damage suits using the common-law concepts of warranty, and under voluntary programmes such as unit pricing and listing nutritional content of foods. The increasing complexity of products and the variety of product choices suggest further moves away from ‘caveat emptor’ or ‘let the buyer beware’ doctrines, moves which on the whole should prove a welcome although sometimes inconvenient challenge for business”.

There are a host of statutory controls on business in India. If the MRTP companies wanted to expand their business substantially, they had to convince the government that such expansion was in the public interest. Indeed, the “Government in India has an all-pervasive and predominantly restrictive influence over various aspects of business, e.g, industrial licensing which decides location, capacity and process; import licensing for machinery and materials; size and price of capital issue; loan finance; pricing; managerial remuneration; expansion plans; distribution restrictions and a host of other enactments. Therefore, a considerable part of attention of a Chief Executive and his senior colleagues has to be devoted to a continuous dialogue with various government agencies to ensure growth and profitability within the framework of controls and restraints”. Many countries today have laws to regulate competition in the public interest. Elimination of unfair competition and dilution of monopoly power are the

important objectives of these regulations. In India, the monopolistic undertakings, dominants undertakings and large industrial houses are subject to a number of regulations which prevent the concentration of economic power to the common detriment. The MRTP Act also controls monopolistic, restrictive and unfair trade practices which are prejudicial to public interest. Such regulations brighten the prospects of small and new firms. They also increase the scope of some of the existing firms to venture into new areas of business. The special privileges available to the small scale sector have also contributed to the phenomenal success of the Nirma. Certain changes in government policies such as the industrial policy, fiscal policy, tariff policy etc. may have profound impact on business. Some policy developments create opportunities as well as threats. In other words, a development which brightens the prospects of some enterprises may pose a threat to some others. For example, the industrial policy liberalizations in India, particularly around the mid-eighties have opened up new opportunities and threats. They have provided a lot of opportunities to a large number of enterprises to diversify and to make their product mix better. But they have also given rise to serious threat to many existing products by way of increased competitions; many seller’s markets have given way to buyer’s markets. Even products which were seldom advertised have come to be promoted very heavily. This battle for the market has provided a splendid opportunity for the advertising industry. Advertising billing has been increasing substantially. That an estimated cost savings of about Rs. 200 crores per year have accrued to the Reliance Industries as a result of the changes in duties on some of the material inputs used by them is just an indication of the tremendous impact the fiscal and tariff policies can have on the business.

SOCIO-CULTURAL ENVIRONMENT

The socio-cultural fabric is an important environmental factor that should be analyzed while formulating business strategies. The cost of ignoring the customs, traditions, taboos, tastes and preferences, etc., of people could be very high. The buying and consumption habits of the people, their language, beliefs and values, customs and traditions, tastes and preferences, education are all factors that affect business. For a business to be successful, its strategy should be the one that is appropriate in the socio-cultural environment. The marketing mix will have to be so designed as best to suit the environmental characteristics of the market. In Thailand, Helene Curtis switched to black shampoo because Thai women felt that it made their hair look glossier. Nestle, a Swiss multinational company,

today brews more than forty varieties of instant coffee to satisfy different national tastes. Even when people of different cultures use the same basic product, the mode of consumption, conditions of use, purpose of use or the perceptions of the productattributes may vary so much so that the product attributes method of presentation, positioning, or method of promoting the product may have to be varied to suit the characteristics of different markets. For example, the two most important foreign markets for Indian shrimp are the U.S and Japan. The product

attributes for the success of the product in these two markets differ. In the U.S. market, correct weight and bacteriological factors are more important rather than eye appeal, colour, uniformity of size and arrangement of the shrimp which are very important in Japan. Similarly, the mode of consumption of tuna, another seafood export from India, differs between the U.S. and European countries. Tuna fish sandwiches, an American favourite which accounts for about 80 percent of American tuna consumption, have little appeal in high tuna consumption European countries where people eat it right from the can. A very interesting example is that of the Vicks Vaporub, the popular pain balm, which is used as a mosquito repellant in some of the tropical areas.

The differences in languages sometimes pose a serious problem, even necessitating a change in the brand name. Preett was, perhaps, a good brand name in India, but it did not suit in the overseas market; and hence it was appropriate to adopt ‘Prestige’ for the overseas markets. Chevrolet’s brand name ‘Nova’ in Spanish means “it doesn’t go”. In Japanese, General Motors’

“Body by Fisher” translates as corpse by Fisher”. In Japanese, again, 3M’s slogan “sticks like crazy “translates as “sticks foolishly”. In some languages, Pepsi-Cola’s slogan “come alive” translates as “come out of the grave”. The values and beliefs associated with colour vary significantly between different cultures. Blue, considered feminine and warm in Holland, is regarded as masculine and cold in Sweden. Green is a favourite colour in the Muslim world; but in Malaysia, it is associated with illness. White indicates death and mourning in China and Korea; but in some countries, it expresses happiness and is the colour of the wedding dress of the bride. Red is a popular colour in the communist countries; but many African countries have a national distaste for red colour. Social inertia and associated factors come in the way of the promotion of certain products, services or ideas. We come across such social stigmas in the

marketing of family planning ideas, use of bio-gas for cooking, etc. In such circumstances, the success of marketing depends, to a very large extent, on the success in changing social attitudes or value systems.There are also a number of demographic factors, such as the age, and sex

composition of population, family size, habitat, religion, etc., which influence

the business.While dealing with the social environment, we must also consider the social

environment of the business which encompasses its social responsibility and the

alertness or vigilance of the consumers and of society at large.The societal environment has assumed great importance in recent years. As Barker observes, business “traditionally has been held responsible for quantities for the supply of goods and jobs, for costs, prices, wages, hours of works, and for standards of living. Today, however, business is being asked to take a responsibility for the quality of life in our society. The expectation is that business- in addition to its traditional accountability for economic performance and results – will concern itself with the health of the society, that it will come up with the cures for the ills that currently beset us and, indeed, will find ways of anticipating and preventing future problems in these areas”.

As Stern succinctly points out, the “more educated the society becomes, the more interdependent it becomes, and the more discretionary the use of its resources, the more marketing will become enmeshed in social issues. Marketing personnel are at interface between company and society. In this

position, they have the responsibility not merely for designing a competitive marketing strategy, but for sensitizing business to the social, as well as the product demand of society”.

DEMOGRAPHIC ENVIRONMENT

Demographic factors like the size, growth rate, age composition, sex composition, etc. of the population, family size, economic stratification of the population, educational levels, languages, caste, religion etc. Are all factors that are relevant to business? Demographic factors such as size of the population, population growth rate, age composition, life expectancy, family size, spatial dispersal, occupational status,employment pattern etc, affect the demand for goods and services. Markets with growing population and income are growth markets. But the decline in the birth

rates in countries like the United States have affected the demand for baby products. Johnson and Johnson have overcome this problem by repositioning their products like baby shampoo and baby soap, promoting them also to the adult segment, particularly to the females. A rapidly increasing population indicates a growing demand for many products. High population growth rate also indicates an enormous increase in labour supply. When the Western countries experienced the industrial revolution, they had the problem of labour supply, for the population growth rate was comparatively low. Labour shortage and rising wages encouraged the growth of

labour-saving technologies and automation. But most developing countries of today are experiencing a population explosion and a situation of labour surplus. The governments of developing countries, therefore, encourage labour intensive methods of production. Capital intensive methods, automation and even rationalization are apposed by labour and many sociologists, politicians and economists in these countries. The population growth rate, thus, is an important environmental factor which affects business. Cheap labour and a growing market have encouraged many multinational corporations to invest in developing countries.

The occupational and spatial mobilities of population have implications for business. If labour is easily mobile between different occupations and regions,its supply will be relatively smooth, and this will affect the wage rate.If labour is highly heterogeneous in respect of language, caste and religion,ethnicity, etc., personnel management is likely to become a more complex task.

The heterogeneous population with its varied tastes, preferences, beliefs,temperaments, etc. gives rise to differing demand patterns and calls for different marketing strategies. References to a number of demographic factors that have business implications have already been made under “socio-cultural environment”.

NATURAL ENVIRONMENT

Geographical and ecological factors, such as natural resource endowments,weather and climatic conditions, topographical factors, locational aspects in the global context, port facilities, etc., are all relevant to business.Differences in geographical conditions between markets may sometimes call for changes in the marketing mix. Geographical and ecological factors also influence the location of certain industries. For example, industries with high material index tend to be located near the raw material sources. Climatic and weather conditions affect the location of certain industries like the cotton textile industry. Topographical factors may, affect the demand pattern. For example, in hilly areas with a difficult terrain, jeeps may be in greater demand than cars.

Ecological factors have recently assumed great importance. The depletion of natural resources, environmental pollution and the disturbance of the ecological balance has caused great concern. Government policies aimed at thepreservation of environmental purity and ecological balance, conservation of non-replenishale resources, etc., have resulted in additional responsibilities and problems for business, and some of these have the effect of increasing the cost of production and marketing. Externalities have become an important problem the business has to confront with.

PHYSICAL AND TECHNOLOGICAL ENVIRONMENT

Physical Factors, such as geographical factors, weather and climatic conditions may call for modifications in the product, etc., to suit the environment because these environmental factors are uncontrollable. For example, Esso adapted its gasoline formulations to suit the weather conditions prevailing in different markets. Business prospects depend also on the availability of certain physical facilities. Some products, like many consumer durables, have certain use facility

characteristics. The sale of television sets, for example, is limited by the extent of the coverage of the telecasting. Similarly, the demand for refrigerators and other electrical appliances is affected by the extent of electrification and the reliability of power supply. The demand for LPG gas stoves is affected by the rate of growth of gas connections. Technological factors sometimes pose problems. A firm, which is unable tocope with the technological changes, may not survive. Further, the differing technological environment of different markets or countires may call for product modifications. For example, many appliances and instruments in the U.S.A. are

designed for 110 volts but this needs to be converted into 240 volts in countries which have that power system. Technological developments may increase the demand for some existing products. For example, voltage stabilisers help increase the sale of electrical appliances in markets characterised by frequent voltage fluctuations I power supply. However, the introduction of TV’s, Fridges etc, with in built voltage stabilizer adversely affects the demand for voltage stabilizers. Advances in the technologies of food processing and preservation, packaging

etc., have facilitated product improvements and introduction of new products and have considerably improved the marketability of products. The television has added a new dimension to product promotion. The advent of TV and VCP/VCR has, however, adversely affected the cinema theatres. The fast changes in technologies also create problems for enterprises as they

render plants and products obsolete quickly. Product-market-technology matrix generally has a much shorter life today than in the past. It is particularly so in the international marketing context. It may be interesting to note that almost half of Hindustan Lever’s 1980 export business did not exist in 1987. In fact, as much as a third of the company’s 1987 turnover was from products and markets, which were under three years of age.

INTERNATIONAL ENVIRONMENT

The international environment is very important from the point of view of certain categories of business. It is particularly important for industries directly depending on imports or exports and import-competing industries. For example,a recession in foreign markets, or the adoption of protectionist policies by foreign nations, may create difficulties for industries depending on exports. On the other hand, a boom in the export market or a relaxation of the protectionist

policies may help the export-oriented industries. A liberalization of imports

may help some industries which use imported items, but may adversely affect

import-competing industries. It has been observed that major international developments have their spread effects on domestic business. The Great Depression in the United States sent its

shock waves to a number of other countries. Oil price hikes have seriously

affected a number of economies. These hikes have increased the cost of production and the prices of certain products, such as fertilizers, synthetic fibres, etc. The high oil price has led to an increase in the demand for automobile models that economise energy consumption. The demand for natural fibres increased because of the oil crisis. The oil crisis also prompted some companies to resort to demarketing.“Demarketing refers to the process of cutting consumer demand for a product back to level that can be supplied by the firm”. Some oil companies-the Indian Oil Corporation, for example-have publicized tips o how to cut oil consumption. When the fertilizer price shot up following the oil crisis, some fertilizer companies appealed to the farmers to use fertilizers only for important and remunerative crops. The importance of natural manure like compost as a substitute for chemical fertilizers was also emphasized. The oil crisis led to a reorientation of the Government of India’s energy policy. Such developments affect the demand, consumption and investment pattern. A good export market enables a firm to develop a more profitable product mix and to consolidate its position in the domestic market. Many companies now plan production capacities and investment taking into account also the foreign markets. Export marketing facilitates the attainment of optimum capacity utilization; a company may be able to mitigate the effects of domestic recession by exporting. However, a company which depends on the export market to a considerable extent has also to face the impact of adverse developments in foreign markets.

SUMMARY

International business is a necessity in today’s world. The gains for greater awareness and knowledge of international business fare immense for nations, multi-national enterprises, trading companies, exporters and even individuals.To go global, the first step would be to understand the international business environment. International business in nothing but extending the areas of

activities of business across the boundaries. We have discussed about the importance of understanding international business environment in detail. The concepts of microenvironment and macro environment with reference to the political, legal, economical and cultural background are also discussed. Understanding international business environment requires greater research and information. The fulfillment of this research could happen with greater

understanding of the framework for analyzing the international business environment.