Environmental Factors of International Business

The international business environment is growing at a fast pace. Globalization and technological advances triggered a period of marked growth over the course of the 19th century. This process stopped during World War II and started again after the war. The sum of imports and exports increased from below 10 percent to over 50 percent of global production.

The growth in international trade allows companies to expand and explore new markets. However, this doesn't guarantee their success. Environmental factors, such as a country's legal practices, politics, social structure and technology, can make or break your business. Companies that are planning to go global have no control over the external environment. Thus, it's essential to research the host country and its markets before expanding your operations.

The economic environment has a direct impact on your business, so if you're planning to take your business global, thoroughly research the countries where you're going to operate. Consider the inflation and interest rates as well as the savings and investment rates. Try to find more information about the volume of imports and exports. Knowing the existing state of the economy is paramount.

For example, tight credit or high interest rates affect customer spending, which in turn, can hurt your business. If you're selling luxury goods, high-tech appliances, designer products and other non-essential items, you may find it difficult to succeed. Even if customers are interested in your products, they may not have enough money to buy.

As a business owner, it's essential that you anticipate prospective market situations before going global. Develop a strategy to maximize revenues and minimize costs. Consider outsourcing your manufacturing, engineering and other activities to reduce your expenses without compromising on quality.

The legal and political environment of foreign markets has a direct effect on your business. Furthermore, these factors can vary from one city or state to the next. For example, each state in the U.S. has its own laws and regulations. Companies must comply with the laws and requirements of the countries where they do business and obtain new licenses or pay higher fees if necessary.

A good example is Sweden where alcoholic beverages stronger than 3.5 percent-by-volume are for sale only in a government-owned chain of liquor stores. If your company specializes in liquors and spirits, your options are limited. You cannot sell your products in supermarkets or set your own prices. Therefore, your ability to make a profit is limited.

Each country has its own culture, which affects international business in three main areas: organizational hierarchy, etiquette and communication. Japan, for instance, values social hierarchy in all aspects of life, including work. Scandinavian countries, on the other hand, have a relatively flat organizational hierarchy. Spain and other Mediterranean countries emphasize leisure time; Germany and Japan value efficiency and have strict workplace rules.

Also, business professionals from different countries may view the purpose of negotiation or verbal agreement differently. For some, the goal of a contract is to create a relationship between the parties involved while for others, it's legally binding. Additionally, what's acceptable in one country may be considered offensive or fraudulent in another. As a business owner, it's important to consider these cultural aspects before you go global.

Its social environment determines a country's value system. Certain factors, such as peoples’ view towards wealth, customs, cost structure, labor mobility and cultural heritage, affect international business. For example, customers living in one country may not be interested in the same products and services as those residing in another country.

Technology is one of the primary environmental factors you should consider before expanding your business. Does the host country have the technology and skills you need to run your business smoothly? Access to modern technologies is essential in industries like marketing, manufacturing, medicine and research. A creative agency or a research lab, for instance, have greater technology requirements than a law firm or a consulting company.

Before you go global, make sure you have a good understanding of the international business environment. Research your target markets and determine whether or not they provide what you need to grow your business and generate revenue. In addition to the environmental factors listed above, consider the competition, customer demand, climate, environment-related laws and workplace efficiency.