The document discusses the various factors that make up the international business environment. It identifies the micro environment, macro environment, domestic environment, foreign environment, and global environment as key classifications. It then examines the political, legal, economic, socio-cultural, technological, natural, and demographic factors that comprise the international business environment and influence international trade and operations. Understanding these environmental forces is important for firms to develop effective international strategies.

2. Introduction
The international environment is going through a historic
transformation. We are moving away from a world in
which national economies were relatively isolated from
each other by different barriers, towards a world in
which national economies, are merging into an
interdependent global economic system. The emerging
global economy creates opportunities as well as presents
challenges and threats to the business

3. Classification
• Micro and Macro Environment
• Domestic Foreign and Global Environment

4. Micro 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
organisations such as middlemen, transporters,
advertising and marketing research agencies,
competitors customers and general public.

5. Macro Environment
• Macro environment 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, social etc. Firms need to
continuously monitor changes in these environmental
forces and devise strategies to cope with them.

6. Domestic Environment
• This classification is based on the location at which
environmental forces exist and operate.
• Domestic environment consists of factors such as
competitive structure, economic climate, political and
legal factors which are essentially uncontrollable by a
firm. These factors operate at the national level and
the firms are generally familiar with them.

7. Foreign and Global Environment
• Foreign environment consists of factors like social, political,
economic, legal and cultural prevailing in a foreign country. The firm
can neglect them only at the cost of losing business in the foreign
markets
• Global environment transcends national boundaries and is not
confined in its impact to just one country. Global environment
exerts influence over domestic as well as foreign countries. It
comprises of forces like world economic conditions, international
financial systems, international agreements and treaties and
regional economic groupings.

8. Components of International Business Environment
• Political Environment
• Legal Environment
• Economic Environment
• Socio-cultural Environment
• Technological Environment
• Natural Environment
• Demographic Environment

9. Political Environment
• At the basis of international law and international
relations: sovereignty (self determination and
independence from external interference, authority
over all nationals)
• International trade limits sovereignty.
• Governments can invoke sovereignty and jeopardize
firm’s operations

10. Political Risk
• Risks Related to Government Trade policies:
– Tariffs,
– exchange-rate controls,
– quotas,
– export/import license requirements,
– other trade barriers (embargos, sanctions)

11. Political Risk (contd.)
• Risks Related to Government Economic Policy:
– Controlling foreign investment through taxes
– transfer of assets from company to local ownership:
- Confiscation (without compensation)
- Expropriation (some reimbursement)
- Creeping expropriation (paperwork, judicial systems, regulations)
- Nationalization (local government takes over)
- Domestication (transfer to local enterprises)
• Risks Related to Labor and Action Groups
• Risks Related to Terrorism

12. Minimizing Political Risk
• Understand both ruling and opposition parties.
• Remain politically neutral.
• Be exemplary corporate citizens.
• Sell a quality product or service that is essential for local
development.
• Partner with local companies and create local expertise.
• Use local suppliers.
• Obtain insurance coverage against expropriation, nationalization,
confiscation, and terrorism.

13. International Legal Environment
• International Laws
• Host Country Laws
• Home Country Laws
• Legal Systems:
– Common law
– Code (Civil) law
– Islamic law

14. Legal (Cont..)
• The international laws shall be binding in the case of a dispute are:-
• Host country laws
• Home Country Laws
• The legal systems that exist in different countries of the world are antecedents
of one of the two legal philosophies
• Common law
• Code (Civil) law
• This generally includes legal factors such as:
• Copyright law
• Fraud law
• Discrimination law
• Health and Safety law
• Import/Export law

15. Economic Environment
It refers to all the external economic factors that influence buying
habits of consumers and businesses and therefore affect the
performance of a company.
• Income levels need to be taken into account as they provide an
indication of the purchasing power of the market and allow
companies to adapt their marketing concepts accordingly.
Some examples of economic factors affecting business are
• Interest rates
• Exchange rates
• Recession
• Inflation
• Taxes
• Demand / Supply

16. Financial Environment
It is a part of an economy with the major players being
firms, investors, and markets. Monetary and Fiscal
Policies:- Inflation, interest rate, various kinds of duties
and exchange rates are the variables related to the
country's monetary and fiscal policies Balance of
Payments Account:- Controls on movement of foreign
exchange into and out of their economies

17. Socio-Cultural Environment
International business must appreciate how foreign culture is different
from their home country’s culture and how this difference is to be
reflected in their business strategies.
There is a wide variety of social and cultural factors, some of them being:
• Level of education,
• Religion and beliefs,
• Consciousness about health issues,
• Social classes,
• Structure and size of a family,
• Language,
• Aesthetic,
• Attitudes and values,
• Different lifestyles

18. Technological Environment
As technology continues to advance, companies can benefit from
these breakthroughs or face challenges in competing with them.
Some of the most common technological factors are:
• New product development
• New organizational styles
• New management techniques
• New marketing techniques
• New production techniques
• Networks, warehouse management, electronic data interchange
(EDI)
• Web/Internet

19. Ecological Factors
Ecological factors influencing business are connected to actions and
processes necessary to protect natural environment.
• The GOI has drawn up an Environmental Green technologies,
green products and green companies are highly valued in today’s
global market place. Ecological factors are:-
• Climate change
• Pollution
• Weather
• Availability of both non-renewable and renewable resources
Laws that regulate the environment
• Survival of particular biological species

20. Demographic Environment
Demographic environment refers to a country's climate,
topography, natural resources and people.
Common demographic variables to consider :-
• Size, growth rate, age composition, sex composition
etc. of the population.
• Family size
• Economic stratification of population
• Education level
• Caste, religion etc.

21. Intellectual Property Rights
• Violation of intellectual property rights is a significant threat to the
competitiveness of international corporations.
• Losses attributed to the violation of intellectual property rights are
estimated to be $60 billion a year. (e.g. Software $11 billion,
entertainment $8, pharmaceuticals $1 billon)
• There is a saying in Shanghai: “We can copy anything except your
mother” (even fake blood plasma)

22. Intellectual Property Protection
• Patent
– Protection of the rights of the inventor or of the firm to use and
sell the invention for a specified period of time.
• Copyright
– Rights of owner of original work of art (literature, music, film,
design) to reproduce, sell, perform, or film the work.

23. Intellectual Property Protection
• Trademark
– Brand name, mark, symbol, motto, or slogan that identifies a
brand and distinguishes it from competitors’ brands. (E.g. Rolex,
Gucci, Fendi/ Design copying without the trademark is legal)
• Trade Secret
– Know-how, formulas, and special blends that are not registered
and are thus not protected by law.

24. Counterfeiting

25. Factors Influencing Intellectual Property Violations
• Lack of appropriate legislation
• Lax enforcement
• Unavailability of authentic products
• High prices for authentic products that limit their accessibility to
local consumers
• Cultural Factors:
– Values that perceive imitation as a form of flattery
– Feelings of interpersonal distrust and not getting fair deal
– Emphasis on material wealth
– Belief that technology is common domain

26. • TRIPS Agreement (Trade-Related Aspects of Intellectual
Property Rights,): member countries of the World
Trade Organization, must sign the TRIPS agreement:
minimum standards for the legal protection of property
rights
• Bilateral and multilateral conventions
• Enlisting home and host-country government support
Protecting Intellectual Property

27. Home Country Legislation
• Antitrust Legislation
– Prevent anticompetitive activities such as the creation of
monopolies and cartels.
• Anti-Corruption Legislation
– Prevent multinational corporations from using unethical
means to obtain competitive advantage in a particular
market
– Foreign Corrupt Practices Act makes it illegal to bribe
politicians.

28. Economic Environment
• Per capita income and size of population
• Stages of economic development
• Consumption pattern
• Economic system
• Product demand analysis
• Competition analysis

29. Socio-Cultural Environment
• International business means operating 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.

30. Culture
• Culture is defined as a continuously changing totality of learned
and shared meanings, rituals, norms, and traditions among the
members of an organization or society.
• 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

31. Elements of Culture
• Language
• Religion
• Cultural Values
• Cultural Norms

32. Technological Environment
• New product development
• New organisational styles
• New management techniques
• New marketing techniques
• New production techniques
• Networks, warehouse management, electronic data
interchange (EDI)
• Web/Internet

33. Technological Environment as an influencing
factor
• Threats Web/Internet
The payment mechanism is sometimes difficult
– Different currencies
– Different method of payments (credit cards, debit cards)
– Accepting credit cards from unknown buyers

34. Natural Environment
• Geology and natural resources (access to resources,
e.g. oil)
• Topographies and access to Markets
• Hydrology
• Climate
• Population/ Human Capital
• Environmental Quality (regulations on the natural
environment, e.g. hormones, pesticides, CO2-Levels

35. Demographic Environment
• Size, growth rate, age composition, sex composition
etc. of the population
• Family size
• Economic stratification of population
• Education level
• Caste, religion etc..

36. Summary
Looking ahead, it appears that in the changing economic
scenario international business is a way of life. The global
corporations have become the central forces of the
world economy and in linking foreign direct investment,
trade, technology etc.. They are a driving force of world’s
growth. The firms will succeed or fail would depend on
their ability to deal with the dynamic international
environment.