International business involves commercial transactions that cross national borders, including trade between private companies and governments. It has grown significantly due to factors like advancing technology, reducing trade barriers, and multinational corporations operating across many countries. Major institutions that influence global business include the WTO, IMF, World Bank, and large transnational corporations. Together these forces have accelerated the globalization trend of integrating economies worldwide through free trade.

1. Introduction
International business comprises all commercial transactions (private and governmental, sales,
investments, logistics, and transportation) that take place between two or more regions, countries
and nations beyond their political boundaries. Usually, private companies undertake such
transactions for profit; governments undertake them for profit and for political reasons. It refers
to all those business activities which involve cross border transactions of goods, services,
resources between two or more nations. Transaction of economic resources include capital,
skills, people etc. for international production of physical goods and services such as finance,
banking, insurance, construction etc. A multinational enterprise (MNE) is a company that has a
worldwide approach to markets and production or one with operations in more than a country.
An MNE is often called multinational corporation (MNC) or transnational company (TNC). Well
known MNCs include fast food companies such as McDonald's and Yum Brands, vehicle
manufacturers such as General Motors, Ford Motor Company and Toyota, consumer electronics
companies like Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell and
BP. Most of the largest corporations operate in multiple national markets. There is different
Physical and societal factors of business such as;
 Political policies and legal practices
 Cultural factors
 Economic forces
 Geographical influences
Areas of study within this topic include differences in legal systems, political systems, economic
policy, language, accounting standards, labor standards, living standards, environmental
standards, local culture, corporate culture, foreign exchange market, tariffs, import and export
regulations, trade agreements, climate, education and many more topics

2. Background of International Business:
Since World War II international business has moved through three general episodes and now
stands on the threshold of a fourth. These episodes are defined by the number of actors relevant
to corporation decision making. The immediate postwar decade is characterized as a two-actor
era – the firm itself and its overseas commercial associates. During the so-called growth years, of
1955 to 1970, increasingly the political impact of, and the political response to, corporate
strategy entered the decision-making calculus. During the 1970s, the "time of trouble," the parent
governments became increasingly active. The new international order which began appearing
around 1980 introduced the multi-actor era in which a wide variety of international organizations
and interest groups became relevant to corporate decision making, thereby introducing a new
degree of uncertainty. Generally, academic research and teaching have lagged the reality. Even
now, much attention is focused on the multinational corporation, a special form of international
business organization which appeared during the 1950s and 60s and which now may be giving
way to the international service and trading companies. The conclusion is that little research is
being done on the internal dynamics of international business.
Importance of studying International Business
The International Business standards focus on the following:
 raising awareness of the interrelatedness of one country's political policies and economic
practices on another;
 learning to improve international business relations through appropriate communication
strategies;

3.  understanding the global business environment—that is, the interconnected-ness of
cultural, political, legal, economic, and ethical systems;
 exploring basic concepts underlying international finance, management, marketing, and
trade relations; and
 Identifying forms of business ownership and international business opportunities.
By focusing on these, students will gain a better understanding of Political economy. These are
tools that would help future business people bridge the economical and political gap between
countries. There is an increasing amount of demand for business people with an education in
International Business. A survey conducted by Thomas Patrick from University of Notre Dame
concluded that Bachelor's degree holders and Master's degree holders felt that the training
received through education were very practical in the working environment. Business people
with an education in International Business also had a significantly higher chance of being sent
abroad to work under the international operations of a firm.
Factors that influenced the growth in globalization of international business
There has been growth in globalization in recent decades due to (at least) the following eight
factors:
 Technology is expanding, especially in transportation and communications.
 Governments are removing international business restrictions.
 Institutions provide services to ease the conduct of international business.
 Consumers want to know about foreign goods and services.
 Competition has become more global.
 Political relationships have improved among some major economic powers.
 Countries cooperate more on transnational issues.
 Cross-national cooperation and agreements.
The importance of international business
International business is important because it allows for the importation and exportation of goods
and services. International business provides a larger realm to sell the goods that they produce.
“International Business” is the most preferable & essential phenomena in the modern world.
Majority of the people know that ‘International Business’ is necessary for the prosperity of the
world. No one can prosper without performing the business. Except business we cannot think a
single moment in the modern world. We know that no country is self-sufficient with their
resources. So, what can they do? If they want to be sufficiency they must perform business. And,
what type of business can they perform? In this question we may suggest that, they can perform
“International Business” which means “Performing business across national boundaries”. As a
result, by performing “International Business” they become familiar with one another as well as
fill up their country with necessary resources. To perform “International Business” one country
must consider some essential steps. But, how many steps? What type of steps? What are the rules

4. and regulations? We can learn about those and can do well by studying the books of
“International Business”. Importance of International Business Education is as follows;
 Most companies are either international or compete with international companies.
 Modes of operation may differ from those used domestically.
 The best way of conducting business may differ by country.
 An understanding helps you make better career decisions.
 An understanding helps you decide what governmental policies to support.
Actually, International Business study’s students are conscious about the business of the world.
They create business opportunities in home & abroad. They are the real citizens of country
because they can easily identify the problems & try to solve it. They also help others to perform
business internationally for making the country sufficient with resources as well as productive.
These students are also conscious about the development of their country by performing business
globally. For example: Bangladeshi Citizen Nobel Laureate Md. Yuns introduced “Micro-
Credit”. By introducing “Micro-Credit “he has gained recognition all over the world. So,
everyone should encourage International Business study’s students to introduce modern types of
business & perform as well assoon.In the period of modern world “International Business” is a
buzzword as like as “Globalization”. Every moment of our life is related to business in orally or
morally. Bangladesh is a small country having large population. To meet the increasing demand
of the population we should perform business internationally at a greater extent. Specially, we
find that “Engineering Universities”, “Medical Colleges” but not “Business
Universities/Colleges” in Bangladesh. So, “Business Universities/Colleges” are the crying need
in the modern world of business. Every country should establish “Business
Universities/Colleges” to get more & more business study’s students for the prosperity of the
country as well as the world. By establishing those any country can introduce the students with
“World business’s process, culture, condition & so on. As a student of “International Business”
of “Dhaka University” I think that we should learn more about the International Business’s
relation, rules & regulations etc. of the world. We should take responsibility for expanding
“International Business” not for profit but for economic well-being.
At last, to expand business all over the world, the International Business study’s students should
also come forward as early as possible. The government should create more &more opportunities
for the students of “International Business”. In my point of view, “International Business” is
most significant subject in the modern world of business.
The Forces behind Globalization
The spread of globalization has been fed by many factors. One of the most important has
undoubtedly been the ever compliant pro-globalization decisions made by the world’s
governments. Another important one has been institutions created by the economic globalization.
Also of crucial importance has been the technology that allowed globalization to happen. Last
but not least engine of globalization was global market.

5. Transnational Corporations
Transnational corporations (TNCs) operate across borders based in several countries at once. The
reduced trade and investment barriers of economic globalization created vast new markets and
almost limitless expansion possibilities for these companies. In the 1970s there were about 7000
TNCs in the world. By 1997 the United Nations Conference on Trade and Development
(UNCTAD) estimated 53000 of them with 448000 foreign affiliates. The area where TNCs wield
some of the greatest influence is trade. Today the largest 500 TNCs control nearly 70 percent of
global trade. About a third of world trade is conducted between different arms of the same TNCs.
Seven TNCs control 85 percent of the world’s trade in grain, eight controls up to 60 percent of
worlds trade in coffee seven account for 90 per cent of world trade in cocoa and three control 80
percent of the global trade in bananas. Despite the substantial global benefits from such trade, the
adjustment pressures created on importing countries could provoke a protectionist backlash.
Large TNC finance and software companies were involved in getting devastating side deal of the
Uruguay round on the General Agreement on Trade in Services (GATS).
This relentless influence of the TNCs was most responsible for the collapse of World Trade
Organization (WTO) talks at Cancun, Mexico in September 2003. The trade Related Aspects of
Intellectual Property Rights (TRIPS) agreement, which award global TNCs patent control over
broad range of strategic goods and services sold around the world. Agitation for the TRIPS
agreement followed lobbying of the Reagan administration by a number of large American
software and pharmaceutical companies during that time. Like economic globalization, in
general, the TNCs can be both negative and positive for domestic economy. If it brings in new
technology, new employment and a significant level of foreign exchange, it can be a positive
influence. If it crowds out existing business in a country, transfers little technology
or know-how and ends up having an insignificant net influence on country’s foreign earnings, it
can have a negative influence.
The World Trade Organization (WTO)
Just as powerful as TNCs in influence over the global economy are three international financial
‘sister’ institutions. The International Monetary Fund (IMF), the World Bank (WB), and the
World Trade Organization. All have their origins in international economic talks held at the end
of the Second World War. Since the Second World War, there have been eleven round of world
trade negotiations, of the first eight rounds, the last three have been particularly influential in
shaping world trade. The Uruguay Round, negotiated between 1986 and 1993 ended up having a
massive influence on the pace of economic globalization. After Uruguay Round, the WTO
stands for ‘rules based’ international trade where all countries are supposedly equal. The
Uruguay Round of International trade negotiations embraced many new areas that hadn’t been
touched by earlier rounds. Consequently the WTO overseas and enforces new global trade rules
in areas previously unaffected by Uruguay Round were agriculture, textiles, patent rights
services and trade related investments.
Another area that the Uruguay Round pushed into economic globalization was services.
The new services trade rules were enshrined in an agreement called the General Agreement on
Trade in Services (GATS). The GATS agreement was aimed at a progressive liberalization of
the global trade in services, starting in February 2000.There remain loopholes that can be taken
to the advantage of big countries. The Market Access Commitments of WTO Members as well

6. as the provision of ‘Listed Services’ are still unclear and unsound. This attempt also ventures to
unfold the implication of trade in service clauses with respect to global offshoring of services.
The Bretton Woods Twins: World Bank (WB) and International Monetary Fund (IMF)
Created in 1945, immediately after the Second World War, the Bretton woods institutions have
pursued specific economic and development concerns, growth, poverty reduction, and trade and
finance. The creation of Bretton Woods’s institutions should be seen in the context of the
depression of the 1930s. Deep and persistent slumps erupted – trade barriers, the collapse of the
international monetary system and termination of international lending. Like the WTO, the IMF
and WB are also catalyzing the ongoing expansion of the world economy. The IMF is concerned
with the short – term stabilization of countries experiencing balance of payment difficulties
while WB is concerned itself with the long-term development through specific project loans.
The IMF is seen as a pale shadow of Keynes original vision, while the WB was for the expansion
of global growth and employment rather than for deflationary policies. The start of Third World
debt crisis in 1982 kicked off new roles to IMF and WB. It began to increase lending. By this
time IMF ceased to be a short – term currency crisis lender. It began to start extending
conditional long-term loans with titles like Extended Fund Facility. The WB similarly began to
operate beyond its original narrow ambit of project based lending that the variability of its loans
were necessarily connected to the long-term economic health of its poor – country debtors.
The IMF/WB standard formula brought on even lower growth just when higher economic
growth was needed. It prescribed huge cutbacks in government spending higher interest rates
and continuing over valued currencies. As a result of the dented reputations of the two
institutions some changes have taken place. Both institutions even admitted to some minor
failings during the Asian melt down. The big body blow to the IMF and WB have been growing
agreement between the left and the right of politics, particularly in the United States, that the
policies of neither institution are working. The net result of their dubious policies and ever
diminishing support is that both became unpopular now. Underpinning the influence of the
WTO, IMF, WB and TNCs is what is known as the “Washington Consensus” or the ‘Wall Street
Treasury Complex’. These are the labels for the common free market ideology. Several factors
reinforce the influence of the Washington consensus. Historically it perpetuates an Anglo Saxon
free market view. Much of the current economic liberalization ideology pursued by the
Washington consensus was originally drawn from the philosophies of a high profile free market
economist, Milton Friedman. He in turn was inspired by free market contemporary John Keynes
and Austrian economist Friedrich Von Hayek. Their philosophies were championed by Margaret
Thatcher and Ronald Reagan. These influences are reinforced by the decision-making structures
of the IMF, the WB and the WTO.
The Technological Engines of Globalization
It was the technological change that allowed economic globalization to happen in the first place.
Politicians facilitated economic development to happen, but technology has given it the means.
Technological change, especially since the Second World War, has massively shrunk the world,
making it more able than ever before to converge into one giant world supermarket and bank. In
1956, it was possible for only eighty nine simultaneous telephone conversations to occur via the
cable that linked Europe to North America, today it is possible to have up to a million

7. simultaneous conversations taking place through the satellite and fibrotic communications link
that now exist between two continents. Computers have similarly shrunk the world. In 1993
there were only about one million Internet hosts around the world, within just six years the
number had increased twenty fold to about forty two million. An equivalent revolution has taken
place in transport technology. According to the Boeing aircraft corporation, world air traffic
cargo trebled between 1985 and 1997 and is predicted to treble again by 2015.All these
technological changes mean that both money and goods can be moved anywhere around the
world less expensively than ever before. There has been no shortage of business people eager to
exploit the new opportunities this had created.
Free Trade and Global Market: Supreme Institutions of Globalization
In the contemporary phase of globalization which began around 1980, a group of developing
economies stopped being on lookers from the sidelines and began to participate in the global
economy. They harnessed their abundant human resources, produced labour intensive
manufactured goods and services in which they had comparative advantage and exported them.
This worldwide movement of global interaction, which enabled developing economies to
participate intensively, was free trade and global market.
Global market is another powerful engine of globalization. It is the venerable innovation of the
new global transnational economic order. In the global village, the market takes up all the space.
It encompasses everything and tends to dominate all other institutions, particularly governments
and the United Nations. The global market is totally dominated by transnational corporations.
Global market is also private market. This market has predominance over all other social or
political institutions. It has a permanent ambition to convert everything in to commodities
including currencies, culture, information, education, health, services, water and air. It integrates
all countries into a single homogenized model of development and trade. In the global market
financial capital dominates all other sectors of the economy. This is the result of the
predominant influence of banks, insurance companies, and institutional sectors, hedge funds on
the distribution of capital, mergers, acquisition and competition. Financial markets have become
the judge and jury of all economic policies. The so-called free trade is done on this global
market. It cannot be touched, smelled, sighted or perfected but all forms of transaction; from
pharmaceuticals to even outsourcing contracts are done on this.
Free trade is another catalyst of economic globalization. In simple terms, trade that is the
buying and selling or the exchange of goods initially came about when certain resources and
commodities could not be acquired locally or within specific societies. As societies grew and
came into close contact with one another, barter and trade became a fundamental form of
economic interaction. Trade is the most obvious manifestation of a globalizing economy. This
international trade came about when essential raw materials were not available or it was not
economically efficient to manufacture goods domestically. At the end of the Second World War,
interest, enthusiasm and commitment to trade liberalization was exceedingly high among the
major trading countries. This had persuaded more developing countries to integrate in to world
economy, attracted by the possibilities of global market. The general decline in trade barriers,
such as tariffs and import quotas, help further explosion in international commerce. The

8. economic opening of countries that have traditionally been minor players in the world economy
such as China and Mexico was another reason for intense international trade. But one force
behind the import-export boom has passed all but unnoticed - the rapidly falling cost of getting
goods to market.
With the rise of globalization steered by neo-liberal ideologies, pro-globalization decisions of
world’s governments, MNCs, TNCs, WTO, WB, IMF, Technology, World Trade and free
Market; now the world has come to a peculiar situation where no one can escape globalization
because it is like a gravitational pull.
Why Companies Engage in International Business
When operating internationally, a company should consider its mission, its objectives, and
strategy. Four main operating objectives that may influence companies to engage in international
business. They are:
1. To expand sales
2. To acquire resources
3. To diversify sources of sales and supplies
4. To minimize competitive risk

9. Expand Sales: Companies sales are dependent on two factors: the consumers’ interest in their
products or services and the consumers’ willingness and ability to buy them. The number of
people and the amount of their purchasing power are higher for the world as a whole than for a
single country, so companies may increase their sales by reaching international business.
Ordinarily, higher sales means higher profits, assuming each unit sold has the same markup. For
example, the Star Wars cost millions of dollars to produce, but as more people see the films, the
average production cost per viewer decreases.
So, increasing the sales will be major motive for a company’s expansion into international
business. Many of the world’s largest companies derive over half their sales from outside their
home country. You’ve heard of many of these companies (with their home country in
parenthesis) – BASF (Germany), Electrolux (Sweden), Gillette (the United States), Michelin
(France), Nestle (Switzerland), Philips (the Netherlands) and Sony (Japan). However,
smaller companies also may depend on foreign sales. Many small companies also depend on
sales of components to large companies, which in turn put them in finished products that they
sell abroad.
Acquire Resources: Manufacturers and distributors seek out products, services and components
produced in foreign countries. They also look for foreign capital, technologies, and information
they can use at home. Acquiring resources may enable a company to improve its product quality
and differentiate itself from competitors – in both cases, potentially increasing market share
and profits. Although a company may initially use domestic resources to expand abroad, once the
foreign operations are in place, the foreign earnings may the serve as resources for domestic
operations.
Diversify Sources of Sales and Supplies: To minimize swings in sales and profits, companies
may seek out foreign markets to take advantage of business cycle—recessions and expansions—
differences among countries. Sales decrease in a country that is in a recession and increases in
one that is expanding economically. By obtaining supplies of the same product or component
from different countries, companies may be able to avoid the full impact of price swings or
shortages in any one country.
Minimize Competitive Risk: Many companies enter into international business for defensive
reasons. They want to counter advantages competitors might gain in foreign markets that, in turn,
could hurt them domestically. For example Company A and Company B compete in the same
domestic market. Company A may fear that Company B will generate large profits from a
foreign market if left alone to serve that market. Company B may then use those profits in
various ways (such as additional advertising or development of improved products) to improve
its competitive position in the domestic market. Companies harboring such a fear may enter
foreign markets primarily to prevent a competitor from gaining advantages.

10. International Business Players
 Multinational Corporation : Business that has direct investments abroad in multiple
countries
 Small Businesses and Entrepreneurs: Small companies and individuals becoming
increasingly active in international trade and investment
 Born Global Firm: Adopts a global perspective and engages in international business
from or near its inception.
International Business Operations and Influences

11. Mode of international business
The six major modes of international business are imports and exports, tourism and
transportation, licensing and franchising, turnkey operations, management contracts, and direct
and portfolio investment.
Imports and exports are the most common mode of international business, particularly in smaller
companies even though they are less likely to export. Large companies are more likely to engage
in other modes of international business in conjunction with importing and exporting. Companies
may import and export merchandise, defined as tangible goods brought into or out of
(respectively) a country. While exports and imports apply mainly to goods, they can also apply
to services, or no products.
Most service imports and exports revolve around tourism and transportation. The revenue gained
from international tourism and transportation is best seen in hotels, airlines, travel agencies, and
shipping companies. For many countries, especially in the Caribbean and Southeast Asia, their
income on foreign tourism is more important than their income from exports. The same holds
true in countries such as Norway and Greece, who earn a considerable amount from foreign
shipping. Many companies enter into international licensing agreements, allowing other
countries around the world to use their assets (ie: trademarks, patents, copyrights, or expertise)
under contract, receiving royalty payments in return. Similarly, many companies engage in
franchising, a mode of business where the franchisor allows the franchisee to use a trademark
that is an essential part of the franchisee's business. For example, Gloria Vanderbilt has
franchised her name out to several clothing companies, forming the Gloria Vanderbilt line. The
franchisor also assists on a continuing basis in the operation of the business-for example, by
providing components, management services, and technology.
Companies also pay fees that may be incurred on an international level for engineering services
handled through turnkey operations and management contracts. A turnkey operation involves
construction of facilities, performed under contract, which is then transferred to the owner when
the company is ready to begin operating. Management contracts are initiated when one company
supplies personnel to perform general or specialized management functions for another
company. This is most evident in Disney's theme parks in France, Japan, and China.
Finally, international business occurs within direct and portfolio investments. By investing in a
foreign company, the investor takes ownership in a foreign property for a financial return. A
foreign direct investment (the more common of the two) gives the investor a controlling interest
in the foreign company. When two or more companies share in an FDI, it is known as a joint
venture. When a government joins a company in an FDI, it becomes a mixed venture.
Conversely, a portfolio investment is a no controlling interest in a company that usually involves
either taking stock in a company or making loans to a company in the form of bonds, bills, or
notes that the investor purchases. Portfolio investments are particularly popular with
multinational enterprises as they offer a safe means towards short-term financial gain.

12. Differences between International Trade and Domestic Trade
Scope: Scope of international business is quite wide. It includes not only merchandise exports,
but also trade in services, licensing and franchising as well as foreign investments. Domestic
business pertains to a limited territory. Though the firm has many business establishments in
different locations all the trading activities are inside a single boundary.
Benefits: International business benefits both the nations and firms. Domestic business has lesser
benefits when compared to the former.
 To the nations: Through international business nations gain by way of earning foreign
exchange, more efficient use of domestic resources, greater prospects of growth and
creation of employment opportunities. Domestic business as it is conducted locally there
would be no much involvement of foreign currency. It can create employment
opportunities too and the most important part is business since carried locally and always
dealt with local resources the perfection in utilization of the same resources would
obviously reap the benefits.
 To the firms: The advantages to the firms carrying business globally include prospects for
higher profits, greater utilization of production capacities, way out to intense competition
in domestic market and improved business vision. Profits in domestic trade are always
lesser when compared to the profits of the firms dealing transactions globally.
Market Fluctuations: Firms conducting trade internationally can withstand these situations and
huge losses as their operations are wide spread. Though they face losses in one area they may get
profits in other areas, this provides for stabilizing during seasonal market fluctuations. Firms
carrying business locally have to face this situation which results in low profits and in some
cases losses too.
Modes of entry: A firm desirous of entering into international business has several options
available to it. These range from exporting/importing to contract manufacturing abroad, licensing
and franchising, joint ventures and setting up wholly owned subsidiaries abroad. Each entry
mode has its own advantages and disadvantages which the firm needs to take into account while
deciding as to which mode of entry it should prefer. Firms going for domestic trade does have
the options but not too many as the former one.
To establish business internationally firms initially have to complete many formalities which
obviously are a tedious task. But to start a business locally the process is always an easy task. It
doesn't require processing any difficult formalities.
Purvey: Providing goods and services as a business within a territory is much easier than doing
the same globally. Restrictions such as custom procedures do not bother domestic entities but
whereas globally operating firms need to follow complicated customs procedures and trade
barriers like tariff etc.

13. Sharing of Technology: International business provides for sharing of the latest technology that
is innovated in various firms across the globe which in consequence will improve the mode and
quality of their production.
Political relations: International business obviously improves the political relations among the
nations which gives rise to Cross-national cooperation and agreements. Nations co-operate more
on transactional issues.
Risk of business
 Strategic risk
 Operational risk
 Political risk
 Technological Risk
 Environmental Risk
 Economic Risk
 Financial risk
 Terrorism Risk
 Planning risk
 Price risk
The Interaction between Politics and Business
Politics and business are closely intertwined. Political forces, both domestic and international,
influence economic policies of individual countries. Similarly, political decisions by national or
local governments affect economic activities and corporate behavior. For instance, when Greece
entered the European Union in 1981, Greek firms not only gained access to economic
opportunities and financial assistance, it also strengthened the democratic institutions and
practices in that country. By being integrated with the liberal democracies of Western Europe,
Greece was able to shed its recent history of military dictatorships. In contrast, when a new
Indian government, for national security reasons, tested nuclear bombs in 1998, the action led to
worldwide condemnation. Foreign governments imposed various restrictions against doing
business in India and with Indian firms. The Indian rupee depreciated markedly and foreign
investors withdrew or delayed their investments. Political disturbances in a country may also
vitiate the economic environment to an extent that normal business activities are no longer
possible. In the late 1990s, civil wars, border disputes, and religious fundamentalism in the
countries of Central Asia stopped Western oil companies from proceeding with the building of
pipelines to export the huge petroleum deposits in that region.
Host governments tend to favor domestic firms (its own citizens and constituents) over foreign
investors; the latter are sometimes suspected of not having the best interests of the country in
mind. However, international firms create economic growth in the form of jobs and income, and
governments want economic development and better opportunities for their citizens.
International investors want satisfactory returns on investment and a stable, operating
environment. Consequently, government policies have to balance national political goals and

14. national economic interests with the needs of the foreign investors. The inevitable tension
between the two sides arises as governments set limits and businesses test the limits. In recent
years, multilateral and bilateral agreements have required national governments to treat domestic
and foreign firms even-handedly.
Effects of Politics on International business
Introduction: The political environment of countries is a critical concern for the international
marketer. International law recognizes the sovereign right of a nation to allow or deny foreign
firms to conduct.
Political Factors Affecting IB:
 Political and Legal differences
 Political and Legal forces
 Trade and investment restriction
 Restraining forces
 Government Policies and regulation
 Political Environment
Political and Legal differences: The political and legal environment of foreign market is
different from that of domestic market. The complexity generally increases as the number of
countries in which a company does business increases.
Political and Legal forces: The most important considerations for global business firms are the
political and legal forces operative in the countries in which they plan to conduct business. Some
foreign governments are unstable, that is, there may be frequent, dramatic and unpredictable
regime changes. When this occurs industries may be nationalized; private property maybe seized
or destroyed; normal business operations may be suspended, the workforce may go on strike.
Trade and investment restrictions: A government imposed restriction on the free international
exchange of goods or services. Trade barriers are generally classified as: Import policies
reflected in tariffs and other import charges, quotas, import licensing, customs practices.
Standards, testing, labeling, and various types of certification. Lack of copyright protection.
Restrictions on franchising, licensing, technology transfer. Restrictions on foreign direct
investment, etc.
Restraining forces: The factors which hamper globalization.External: It includes government
policies, & controls which restrain cross-border business, social and political opposition against
foreign business etc.Internal: Organizations ‘internal factors.
Government Policies and regulation: Government policies & regulation may also motivate
internationalization. Many governments offer number of incentives 7other positive support to
domestic companies to export and to invest in foreign countries. Several countries give a lot of
importance to import development & foreign investment.

15. Political Environment: The political environment including the characteristics & policies of the
political parties, the nature of the constitution and government system &environment
encompassing the economic & business policies. The most important policies are:Industrial
policyPolicy towards foreign capital and technologyFiscal policyForeign trade policy.
Political Stability: In totalitarian nations, government instability not only threatens but also
ruins international business operations Instability in some of these authoritarian governments can
be caused by internal turmoil, military coups, or even war. Democratic nations have stable
governments even as the heads of state keep on changing every few years, both the economic
and political policies will remain and no impact no matter how adverse will interfere with the
international business operations.
Political Risks of Global Business:
 The risk to business interests resulting from political instability or political change.
 It exits in every country around the globe and varies in magnitude and type from
country to country.
 It may arise from policy changes by govt. to change controls imposed on exchange rates
and interest rates.

16.  Political risk may be caused by actions of legitimategovt. Such as control on prices,
outputs, activities, and currency.
 Political risks may also result from events outside of government controls such as war,
revolution, terrorism, labor strikes.
Types of Political Risk:
 Confiscation: The more severe political risk is the seizing of company’s assets without
payment.
 Expropriation: is where the govt. seizes an investment, but some reimbursement for the
assets is made.
 Domestication: occurs when the govt. mandates local ownership and greater national
involvement in a foreign company’s management.
 Economic Risks: International firms face a variety of economic risks. Govt. can impose
restraints on business activity to: protect national security, protect an infant industry, and
Raise revenue.
Conclusion:
Industrial business is all commercial transactions between parties in two or more countries. The
international business environment is more complex and diverse than the domestic business
environment. International business comprises all commercial transactions (private and
governmental, sales, investments, logistics, and transportation) that take place between two or
more regions, countries and nations beyond their political boundaries.

17. References:
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