Todays International Business Environment - Essay Example

Research- Academia 17th April 2008 International Business Environment Topic: It is essential for organizations operating within the international business environment to have a high awareness of the differences between the political, economic and socio-cultural systems of the countries and regions in which they operate. Today the business is no more limited to one single country. Almost all companies are turning global. The use of Internet has accelerated the movement towards globalisation. This leads a company to work in more than one environment- internal and external. The domestic companies are accustomed to the internal environment of the country they belong to but they have to know, understand and adjust to new external environment of other sovereign countries they plan to operate in future. The new external factors are new people, their culture, society, language, political system, work habits, social system, regulatory system, and taxes legal and technological base. Legislations and government rules and laws determine the political environment of the new country. Every country in the world follows its own system under the sovereign rule and the company who enters into that country has to follow those laws and systems. Economic environment is also different in that country because economic requirement, financial system export/ import requirements may be different to those in the domestic country Technological base and the work environment may be different .The internal variables in the new country may be absolutely different and the company entering into that country has to adjust to those variables as quickly as possible to be successful. There may be many threats and responsibilities posed by the new system and environment that has to be answered by the new entrant. The major factors that bring in changes in the host economy are: 1.The International Business Environment 2.TheInternational Economic Environment 3.The Competitive Environment 4.The Cultural Environment 5.TheTechnological Environment 6.The International Political Environment 7.The Ecological Environment 8. International Legal Environment Economic and Business opportunities The first and foremost consideration before entering into a new country is to assess the economic benefits of investment in that country. Whether the project is profitable in the long run or whether it is sustainable in the new circumstances and environment or whether the new investment in that country is free from undue risk are to be considered and answered before The debt possibilities and structure in the new country must be assessed deeply before the strategic move. The impact of debt on global corporation whether personal, corporate private or public may be very high sometimes. The best time to enter into a new country is the time of rising cycle of the business. It is possible to understand the up trends in the economy and enter in to that country in the best opportune time. The advantage of doing so is to avoid getting the investment into loss and ensure good returns in booming period in the economy. Recent examples are the two booming economies in Asia-India and China. Many multinational companies found the way into china for last decade or more and made their investment yield high returns. Similarly from 2003 Indian economy also started raising its head and many foreign companies entered into this country in Automobile, consumer, electronics, infrastructure and information technology sector. On the opposite many Indian companies also have their openings into other countries as takeover or into Greenfield projects. High debt symptom is to be studies carefully before deciding about new investments in foreign courtiers. High level of debts is an economic indicator that might put the economy into danger zone. For example USA, which is running in trillion-dollar debt, is a bad indicator for investors from outside. High level of debts may not cause down trend in prosperous countries but when downtrends set in it deepens it and lead the economy into deep recessions. USA is correct example again which is at present moving toward that type of situation. Many efforts to correct the economy by lowering interest interests rate have not proved sufficient to correct the deteriorating situation.. Country's saving rate and how saving is being channelled into financing for production of goods and services rather loading the debt basket for lending for asset purchase or refinancing the old assets is important to be studied. Sudden surge in debt may prove harmful that may lead to higher interest rates, falling asset prices and economic downtrend as recently seen in UK. There, the saving was channelled into asset financing to earn reckless profit ignoring the basic rules of financing resulting in credit crunch and sharp fall in prices of real estate. Corporate organisations shifting their investment in to other countries must assess the country's debt burden at all levels, private, government or corporate before investing. They must include these factors into their strategic planning and avoid getting bad or lower returns. International Political Environment The planning and prosperity in new venture abroad is guaranteed only when the political system of that host country is smooth enough to let the investment fructify and provide appreciable returns. The nature of government whether democratic or communist or military or dictatorship is a determinant factor. The political scenario, its local government, labour profile, leadership, media industry profile and general populace are important considerations. Examples of China and India are very relevant here. Government structure and governance, political parties, labour and the overall system are altogether different in these two countries. China is a communist country where there is central dictatorship that frames the entire governance in the country. People are not free to act. They have to work within the strict framework set by the central government. India on the opposite is a democratic country where under basic rules and laws framed by the parliament and people are free to act within that. New investor from abroad has to understand what the central leadership in china aim and stand for but for India investment he has to understand the whole gamut of the country, its people, its culture, its local government its language, labour force and the attitude, the banking system, investment scenario and so on. Both the countries have merits and demerits but the risk and decisions belong to the investors. For example investors particularly from USA invested large amount of dollars knowing well about the Chinese leadership and country's economic profile. They took risk and today they gained more than proportion because the appetite for investment in China was very vast and no country could afford harming investors for its traditional system. India on the other hand did not present a stable government. There was a fear factor for destabilization leading to loss in projects. Investors here also ignored this factor and boldly invested here. Their investment didn't go wrong since the government remained more or less stable. There is gain where there is risk. This old adage fits well here. This does not mean that political factors can be ignored. As a matter of fact the up trend cycle of both the countries saved the investors from losing. As stated above this a very pertinent sign for investing in a new country even at the risk level. No one would like to invest in the burning conditions of Iraq, Iran, North Korea and other politically fragile country. The political situation of a country cannot be smooth to promote a right work culture unless backed by the positive work culture of the labour force in that country. In India the labour force is divided into two major groups, one led by the communists and the other led by the democratic forces. There is continuous tug of war between these two groups. Because of the democratic system they cannot prove detrimental to the country's economy. Even in democratic set up some governments can prove detrimental to the investors as happened in India itself when a new government under the garb of socialism sacked Coca Cola companies to fold its investment in the seventies. The company remained banned from the country for thirty years before they again marched in. Union Carbide had to pack off after the notorious Bhopal gas leak accident when thousand of workers and villages in the neighbourhood had died away or become crippled for life. This company tried to settle the matter against nominal compensation but the public could not pardon them. Even today the Dow chemical that bought this company out and are trying to resettle in the eastern part of India is facing heavy public outrage on the ground of future safety. Media is very important conduit in between the public, government and the corporate investors. Correct reporting and public relationship through these media can promote the well being of these companies in a country. Adequate and correct knowledge of political environment, industry environment, media, labour and media of a country is vital for the success of investment in a new country. International Social opportunity Global market is very competitive and challenging. The success of a business depends on access to capital infrastructure in areas of education, communication, transportation, logistics, health, science and technology environment safety and other such important parameters. Social and economic factors also play challenging role in meeting the competition in the global market place. There remain so many cultural barriers, social ethos, outdated social systems that impede growth prospects of an economy. When these barriers break there comes the laurel of successes from behind. Let us examine the example of two great countries on the basis certain social parameters as designed by Geert Hofstede and judge the fundamental changes in those countries. On the basis of five country scores USA and India are compared to understand the social values prevalent in the two countries: These score clearly shows that USA has been a more progressive culture with openness, seriousness and acceptance than India is. Yet this country is opening very fast sacrificing its social taboos and advancing towards inviting global capital and accepting global tasks on the way to progress and growth. Spread of education particularly technical knowledge among Indian students and their exodus to foreign countries where prospectus are bright foe employment has opened the door to progress. Americans have identified these Indian talents and their culture from American Indians and bestowed a lot of confidence in them .It is not the low cost only that attracted American to India but the professionalism to accomplish a task assigned without time lags and excuses are more important factors. According to Kearney Global Services India ranks first among the countries of the world in terms of offshore Service locations. The basis of selection is cost, peoples' skill, and business environment. India offers the best business environment to the scale of 7, the most competitive cost at the scale of plus 3 and the best peoples' skill at the scale of 5.5. Business environment Today's business environment is governed by Internet and e-Commerce which is quite different than it was a decade ago or more. The suppliers, manufacturers, and purchasers are closely and instantly linked. Direct orders from purchasers to producers and orders supplied directly to the distributors or retail shops under packed conditions to be opened by the retail buyers only at homes can be business scenario now. This is possible based on standardization of goods, automation in manufacturing practice, and packaging and by communication process. The concept of extensive network of large retail centres that have reduced cost and retail prices is possible by these modern systems only. The practice of retail network was absent in India but now many of these American companies such as McDonald, starbucks, Wall mart, Office Max and India's own Big bazaars, Spenser, Subiksha have opened or are opening shops in the country thanks to the retail booms. The foreign investors have to understand the buyers profile with cultural background to be successful. For example Wall Mart had to face initial resistance in the country by many groups such as the Hindu chauvinists who doubted that the centre would sell beef products the Hindus don't consume. The public relation cell of McDonald had to campaign hard to remove this doubt before they became successful in spreading their wings. The culture of the youths in the country is changing fast because of high-income earnings and globalisation. These income and age groups have to be approached delicately to be their choice. They are the folks who will control the new business environment. References Cnnmoney.com India.inc. visited on 17th April 2008-04-17 Economic Intelligence unit, The Economist 27 march 2006 Press release. www.eiuresources.com/mediadir/default.asp Visited on 16th April 2008 Geert Hofstede Analysis India www.cyborlink.com/holfsteadanalysis Strategy Driver for global business www.ravenwerks.com/global/global3.htm - visited on 16th April 2008 United nation Chronicle , weaving the global compact. www.un.org/Pubs/chronicle/2000/issue2/0200p42.htm - 15k visited on 17yh April 2008-04-17 www.booksites.net/brooks visited on 16th April 2008 Read More