International Business Environment
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Published: Fri, 14 Jul 2017
1. International business environment
Book0)Business mean to busy in an activity, which are related to money almost business have 50% chances of profit and losses.(Morrison, j. 2002)Business is operated in every part of the world. As the business grow. It is looking for new opportunities across the border. International business is the term use for the operation and objective of the organisation that have interest in other countries. For example Tesco, Ford, General Motor, McDonald, Disney, so many other companies. These companies have key interest to standardise their product for general acceptance. The international business becomes more complex. Tie between the different societies and organisations. (Meldrum, D.H) as businesses inter into new market it chances of 50% losses increases. Due to different in economic, political, cultural structure, policies, geography and currencies. These factor decreases profit ratio of international investment. There are no specific criteria to measure such in-stability. Every investor used their own method and measure. Uncertain condition of country make easy for international business to design their own stability criteria.
(Considering risk in international business) Business has no idea about the local risk. It’s difficult to operate and manage in such condition where the Culture, Social, Economic, Political, and legal structure are not stable. In such cause the international business need to take all the measurement either it`s Commercial, Culture, Social. Political or legal instability before enter into new market or country.
2. International business
(McCulloch, C.1999)International business is started as with the formation of first national borders. Greek started such activity before the Christ follow by the British in 1600 when they establish the East India Company throughout the Asian as trading firm. With passage of time international business is started all over the world especially in United State. (Czinkota et al., 1999) The international business brings countries together. It makes the world as global village. It exchanges the ideas, information, service, and capital across the country’s borders. This results in best used of human capital increases employee opportunity. Equal growth of wealth, price stability, availabilities of goods and services to each and every one. It bring new environment of friendship, development, stability, prosperity, innovation and technology in the world. Due to the international business same kind of product are used throughout the world. For example ford, Toyota, Honda, and McDonald, KFC, burger king, and so many other things which are use worldwide.
International business brings globalisation in the production. For example dell computer it different part are produced in different countries, assemble these parts in another and sell it in yet other countries.
3. Definition of international business
(Book4) “The commercial activities crossed national borders. It involved the international movement of good, capital, services, employees and technology; importing and exporting; cross-border transactions in intellectual property (patents, trademarks, know-how, copyright materials, etc) via licensing franchising and management contracts.”
Book3 ) “the transaction done by individual or organisation cross the countries. To satisfied the objective by mean of export, import and foreign direct investment. And it carried out in wholly owned, joint venture, licensing, franchising and management contracts”
4. Problems of international business
Book4) International business experiences some difficulties when they operate in other countries.
- International businesses have to deal under the local rules and regulation. Have to use foreign languages.
- Difficult to get information about foreign countries.
- Deal in foreign currency. The exchange rate may be varied.
- When deal in other countries their culture and social value must be taken in account.
- The risk factor is high in foreign countries include political, commercial, and financial.
- Communication and control of international business is difficult.
- Difficult to absorb the demand of the international market.
- Most of time is waste in research and survey of the local market trends.
5. Meaning of stability
J1) Stability is very important for the human life. Without it there will be no “culture” no “organisation” and no “society”. (dictionary) According to oxford`s dictionary. “Resistance to change, deterioration or displacement”. Stability is a ship in the sea which maintain its upright position either the condition is.
Stability maintain for long period of time and it resist to all the changes that happen in the surrounding. According to Aldous Huxley`s “the stability is way of life. And life Moto is community, identity and stability.” if we come to the countries stability it has great impact on all walks of life. J4) without the stability the country well be in depression. And their well be no social security, health care, education, defence, infrastructure, law and protective services, low GDP, GNI, AND PPP (Purchasing, Power, and Parity ), price fluctuation, un-stable exchange rate, high rate of taxes, no leadership, no culture values, no innovation, no technology, financial position of the countries will be week, and have no capital market. Such condition is not considerable for the international business. Business development and prosperity are depending on the local and national conditions.bbok1) for example both South and North Korea. South Korea living standard is 10 times better then North Korea. GDP of 46.4m compare to 22 m GDP of North Korea. This big different is only because of stability of the both countries. North Korea tries to attract the foreign investment but “poor infrastructure, un-reliable power supply, poor transportation and unstable military condition” are the big barriers for the foreign investor. On the other hand South Korea has stable political, economic, legal environment, and stable infrastructure. Which cause of attraction for the international business and South Korea main stream business are Daewoo, Hyundai, and LG. These are the internationals brands.
6. Instability of the countries
J9)Different business made their own criteria to measure country in-stability but mostly the factor involved in country in-stability is closely related to each other.
- Political instability
- Economical instability
- Cultural instability
- Legal instability
- Financial instability
- Location and neighbourhood
6.1 Political instability
Book3)Political stability play an important role in the stability of the country. Due to political stability international business are attracted to invest in the country, despite their location, weather, and natural resources availability. Boo4) politics is define as
- “the direction and administration of state”
- “government” and
- “the control of aggregate social relationship”
Bbok5)However, political instability is a great risk for the international business. Usually these are three risks.
- Ownership risk, in some causes the ownership of the international business is shifted to the host country without any compensation to international business through confiscation or expropriation.
- Operation risk, international business faces such situation. Due to the security, change of law and government, terrorism, arm conflict, civil war, tax regulation, and so on.
- Transfer risk, transfer of money from one country to another, in which the government rules are involved, high exchange rate, and tax on transfer of money.
J5)Political instability rise due to continuous change in government, and law, nationalism corruption in the government officer. Example is Pakistan where the government change regularly. this create security risk, inflation and high corruption.
Terrorism, internal is external war (arm conflict), kidnapping, example Afghanistan, Pakistan Iraq, and Serra. Jouranl2 according to Gupta (1990) he use ten elements to explain the political in-stabilities.
- “Number of political demonstrations”
- “Number of riots”
- “ Number of death (assassinations)”
- “Armed attack events”
- “Political executions”
- “Number of death from political violence”
- “Occurrence of successful coups d’état”
- “Occurrence of un-successful coups d’état”
- “Number of strikes” and
- “Nature of government” democracy or dictatorship.
Bo5)Political fluctuation has bad impact on international business. In such condition international business before inter into new political environment need to get all information. Need to make such analysis.
- Government of the country in the political party hand (democracy). Or it power in the hands of one person (dictatorship).
- The countries have free market or the government control it. Is government encouraging the international business to invest in local market to achieve the economic goals?
- Who are the customers and competitors of the international business private or public sector?
- Is Policy making of the country is according to law?
- Is the change of government the economic policies well change or remains same?
B4)Political in-stability affect all kind of business even it home or foreign. To make decision about the future investment in foreign country information about the country political condition are collected from the following sources.
- Personal visit to country get information from local business. Bank, stock market and international credit control agencies. And from local news.
- Get information from the country embassy. And from locals who have expert knowledge about the country situation.
- International chamber of commerce is one of the best sources of information.
- From the minister of the home country. Get export opinion from the local people who are specialist in a particular field.
6.2 Economic instability
Book1)Countries are considered stable if they have high national income. Price stability, high capacity of production of products and services, high employment rates with technological innovation and high investment. And the indicator of the economic growth high rate of GDP affects the high standard of living, heath and capital investment. These factors are very important for international business to invest in such economy. Government and economics are interrelated with each other. If government is stable economy is stable by itself.jour6) Political instability affects the GDP growth of country. It is called “politicalization of economic growth”. Economic growth is not affected by the nature of the government (democracy or dictatorship). But it is affected by it policy either it`s fiscal or monitory. Develop economy have the following features.
- High education rate, public health care services, and social benefit are available to each and every one in the country.
- Economy has high defence system. General public and country assets are secure, no arm conflict and terrorism. For example Pakistan has security problem and internal terrorism due which economy is going down.
- Developed infrastructure mean of communication, transportation, power supply and the availability of banking and financial structure.( journal 7) For example power supply situation is very bad in Pakistan it have regular break down and not even fulfil the local requirement. Plus the transportation in Pakistan is not proper regulated.
- Country has appropriate industrial and agriculture development.
- Developed monitory policy, for example country has price stability, equal distribution of money and money exchange rate is remaining stable. For example Pakistan money exchange rate changes regularly. This increases fluctuation in economy.
- Economy has high government spending and low tax rates.
Jouranl8) economy is effected only when exchange rate not remain stable in international market and government have high tax rates and low spending which increases fluctuation in economy. And inflation is increases in the country. And economic situation is considering in-stable. Book 6) to increase trade between countries economic bloc are establish. For example Europe, North America, South America and Asia pacific areas. Countries in economic bloc have high rate of GNP then the non member countries.
Book 7)international business have prier information about the economic situation and make such analysis before investing in the country.
- Population of the country, power of consumption, income level, balance distribution of money, industrialisation and agricultural activities.
- GNP rate, rate of growth, GNI rate, price stability, rate of inflation, money exchange rate, government taxes and spending.
- Infrastructure transportation, communication, mean of power supply, banking and availability of financial intuition.
- Size of economy and economic system centrally planned economy, mixed economy or market economy.
- Number and size of competing unit. Balance distribution of business or firm have market monopoly.
- Life style, shopping pattern, urbanisation, heath and social services, housing environment, law and defence and education level.
Sources for international business to get information about local economy is World Bank, IMF, Government publish data, and international economic services.
6.3 Cultural instability
Book6) culture can be defined in different ways
(Meeds) “Share patterns of behaviours”
(Hofstede) “Collective mental programming “
Culture is different from nation to nation, because of language, religion, ethic, and behaviours. These have direct effect on life style, education, economic, organisation and political structure, law and regulation. Culture separates the world into different nation and state. Most of conflicts within country barber are arise due to culture difference. This divides country into two parts. For example Pakistan and India separate from each other only due to culture difference.
Language is different from country to country. In most countries people used more than one language. Which rise issue of culture different in the same nation. For example Pakistan has more than one language. Which rise race issue in same country. And create economic, political, law and order, unequal distribution of wealth crises in the country. Affect the stability of the country.
Book2) From the last one decade religious race is rise in the world. Divide the world into two religions Islam and Christianity. And create terrorist and religious extremist. For example Telenor Denmark mobile company operated in Pakistan last lots business and offices across the country during period of 2005 and 2006 due to religious riots and strikes to protest blasphemous cartoon against Islam was publish in one of Denmark news paper.
Country with culture extremist is considered unstable. And most of investor shows lack of confidence in investing such countries. Following analysis international business need to done before invested in such countries.
- How strong Culture County have. Number of Culture conflict in the country. And their effect one local and international business.
- Business has information of Religious extremism activity in country. And number of religious strikes and riots.
- Information about local social, labour and market culture.
- Number of language in country and racism activity in country. and law and order situation of country.
6.4 Legal instability
Book india)Law varies from countries to county. Country law is according to their political and economic situation. And design by Government and society. Law deal all aspects of business either it is contract, employment, tax regulation, property protection, company law, competition, health and safety, environment, human right, product liability, trade mark, patents, nationalization, currency exchange, and foreign currency. Court or judicial system exercises such law in country. In most countries court system is weak, and law change regularly with change in government. Corruptions in system, conflict are settling outside courts. Delay in court decision. Judicial system is not free in work under the supervision of the government. For example Pakistan where judicial system is unstable and government supervise court. This created lots of security problems in country. And it have considerable unfavourable situation for foreign investor.
J9)In some causes country law put barrier in way of foreign investor. Country law put restriction on transfer of funds. This creates transfer risk for international business. High tax rates on foreign investment. Restrict export and import policy. Analyses of international business before invest in a country.
- Business has information about common, civil, public and criminal law. And have idea about country law for foreign investment.
- How local law protect the intellectual property like trademark, patents, registration and copyright.
- How the court or judicial system work, court system in country is strong or weak, law have their own freedom or it work under the supervision of government.
- Business has information about law of data protection and personal details.
- How health and safety, human right regulation work at the place of work.
International business can get such information from sources World bank report, human right organisation, UNO, country financial report, news, and country legal report.
6.5 Financial instability
J10) Financial instability slows down development process in the countries. Stock market of the country goes down. Trade decreases and done with considerable high prices. Financial institution is in deficit. Taxes and interest rate are increases. Current account of the country goes in deficit. External borrowings are increases. Federal Reserve of the country decreases. Remittances are goes down. Fiscal position of the country becomes weak. Country cut down the social security and other health care benefit of general public. Cash flow in country slow down. Prices go high and selling decreases. Government spending in country goes down. Country exports are decreases. Unemployment increases, crime rate are high, capital loss and bankruptcies are the result of the financial instability. In such condition there are rear recovery solutions.journal11) Financial instability in country rise due to following reasons
- Un-proper economic policies monetary, fiscal and exchange rate.
- Poor risk management of financial intuitions.
- Weakness of the government intuitions.
- Wrong measurement of the international financial market.
J12 In this situation their are many risk for international business to invest in such country. Where exchange rate is not fixing and fluctuated regularly. It is a real risk for investor. Under and over valuation of the money caused loss to investor. For example currency rate of Pakistan is regularly fluctuated although country foreign policies is very relax to attract the foreign investor but due to financial instability international business are reluctant to invest in Pakistan economy.
J13)Sovereign is another risk for international investor. When host country is not able to meet loan obligation. Country is run out of foreign exchange due to financial instability.
6.6 Location and neighbourhood
(Jour14)Location and neighbourhood play an important role on the stability of the country. Stability in country and good relationship with their neighbourhood are favourable condition for international business. Countries with same culture, value, ethic and believes, establish a economic bloc where neighbour country share free trade, no restriction of immigration, and they enjoy the same currency. And remove all barriers from trade and they enjoy smooth business with each other. For example the European countries they have free trade agreement. And have one common currency. This brings stability in countries and economic progress as well. If business invest in one of country. Business can cover the market of it neighbouring countries as well. For example Nissan and Toyota establish plant in UK and it covers the whole Europe market.
Journal15) On other hand countries in area where situation is not stable. It has effect on other countries. For example Chechnya was in state of war due to Chechen war whole reign was in uncertain condition. It war effect economic and political instability in neighbour countries as well.
Similarly Pakistan border are near to Afghanistan and India. Pakistan political and domestic relationship with India is not good and both have many dispute. This creates instability in area. On other part of Pakistan have Afghanistan border. Afghanistan is suffering with terrorist activity in the area. Such terrorist activity are now inter inside of Pakistan area. ……………………………
As the distance increases from the investor country it increases in risk of control and communication problem. It cause delay in business operation. Some causes business not gives quick response to economic and political changes in the area. Due distanced of management control from the host country.
7. Table 1
Instability impact by investment types
Direct investment short term financial short term loan long term loan
Instabilityprivate sectorprivate sectorto governmentto government
- Economic High Low Low Moderate
- Political High Low Moderate High
- Culture High Low Low Low
- Legal Moderate High High High
- Financial High High High High
- Location High Moderate Low Moderate
- Table show the impact of instability on type of investment.
8. List of unstable countries of the world:
- Ivory coast
- North Korea
- Journal 16
9. Conclusion and recommendation
The process of location of foreign operation in a new country must be carried out carefully. Firm which aim to invest in foreign country need to make analysis of capital development, economic, political, culture, and legal stability not to make analysis on the risk involved in country. Almost of countries have risk in past. the investment of international firm bring changes in the situation. And country becomes economically stable. The country with risk has no competitor in the area. And with inter of international business it make positive impact. Create more employment, which increases consumption power of people. International business have high rate of profit. As the international business making contribution toward the economy of the country the government of host country give international business some relaxation in law and ensure him all kind of security as business need to do their operation.
In order to minimise risk in foreign operation international business need to inter into new county as trader (exporter-importer) or most commonly inter as joint venture with same size local company.
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