The fundamental basis for strategy formulation is the environmental analysis. Environment provides the opportunities to the business to produce & sell a particular product. For Ex: the present scenario the business environment provides the wide opportunity for Internet,touch screen mobile etc

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Environment means surroundings.IBE means the factors/activities those surround / encircle the international business. In other words , business environment means the factors that affect or influence that MNC’s.

International Management

IB vs International Management

The focus of IB is on international transactions , whereas IBM deals with managing such transactions within the boundary set by corporate strategy When a company decides to enter a foreign market that decision incorporates planning to establish the ways by which business functions – Marketing, Accounting, HRM & so on are to be managed in that distinct location. Managing the various functions & coordinating them with the parent company’s overall strategy is the task of IBM

International Business Enviornment

Internal Environment

Internal environment factors influence /affect the business from within. They include: Production management. Management/leadershi p style.

Human resource Management Trade Unions Organization structure Financial management Marketing management

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External Environment

Micro External enviornment

Competitors Customers Market intermediaries Suppliers of raw materials Bankers & other suppliers of Finance Shareholders Stakeholders of the business firm.

Macro External Enviornment

Social & Cultural factors Technological factors Economic factors Political factors

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Governmental factors International factors Natural factors

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Factors that affect IB includes: Social & Cultural factors (S) Technological factors (T) Economical Factors (E) Political & Governmental factors (P) International factors & Natural factors (N)

Social & Culture

Culture is a thought and behavior patterns that member of a society learns through language and other forms of symbolic interaction. Acquired knowledge that people use to interpret experience & generate social behavior. This knowledge forms values, creates attitudes & influence behavior.

Elem ent s of Cult ure


Values & Attitudes


Social Structure


Customs & Manners


Verbal -written -oral Non-Verbal -Punctuality Physical Distance Kinesics

Time Orientation -Relating with others -Attitudes & Posture -Gifts -Usage of Products

-Attitudes towards entrepreneurs -Holidays -Gifting -Role of women -Products & Services -Marketing Practices


Consumption of Alcoholic drinks is acceptable in the society. It alcoholic drinks is acceptable in the West however, it is not socially acceptable in India & it’s socially & legally unacceptable in Saudi Arabia. Life time employment policy in most of the companies in Japan. Masala Dosa & Hyderabadi Briyani have become popular in Europe & the USA whereas Pizzas have become popular in India.

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Disney In France

Disney with its success in park business & entertaining children in USA entered Japan in 1983 & became successful there too. Disney decided to enter Paris & France market too in 1986 owing to vocational advantage of Paris &availability of subsidies & incentives by French Govt. Disney had problems of negotiations with France Govt & also unwillingness of French people to accept Disney. despite these problems, Disney opened the park in 1992.Soon after the opening , French farmers drove their tractors & blocked the entrance. Later, there were a no. of operational deviations like Disney’s policy of serving

Later, there were a no. of operational deviations like : Disney’s policy of serving NO Alcohol Serving less quantity of breakfast Lunch timings Non-sutability of teamwork for the employees of Disneyland Paris. It result in the loss of $2 billion by the end of 1994

Social Environment

It consists of religious aspects Language Customs Traditions Beliefs

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Tastes & Preference Social institutes Living habits Eating habits Dressing habits etc

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Technological Enviornment

One-up-on-a-time’s illusion is getting into reality because of technology. Technological changes enabled IB to take the shape transnational business through the concept of Global business. IB gained significance due to the amazing advancements of technology. Technology is the application of knowledge.

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Technology feed for itself
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Technology makes more technology. It is self reinforcing. It brings the globe closer. It flows from the advanced countries to the developing countries through the MNC’s , JVs , technological alliances, licensing & franchising.

Major investor on Technology in Asia-Pacific regions in 2003
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Australia China Japan New-Zealand Singapore India

% of Spending on Tech. to total investment
15 12 14 13 6 11

Investment I Technology

Advanced countries spends considerable amount on R&D for further advancement of technology. SPENDING % R&D BUDGET ON PRODUCT 50% INNOVATION 30% 70% SPENDING% R&D BUDGET ON PROCESS 50% INNOVATION 70% 30%


Technology and Economic Developmentof the significant factors  Technology is one

which determines the level of economic development of a country.

The difference between the nations is mostly reflected by the level of technology. India had vast natural resources , it remained as a major importing country due to its low level technology before 1991.Japan with its high level of tech. could export finished goods to India by importing the raw material from India itself. Thus though Japan is endowed with poor natural resources , the Japanese became reach & advanced due to technology.

Technology & international Competition

Nations develop economically when they translate science into useful technology & in turn create wealth from innovations. Innovations is the useful adaption of science or knowledge including inventions of new products or processes.




Process innovation In automobiles , steel, telecommunications and microelectronics Innovations in chemicals, pharmaceuticals, automotive engineering , medical instruments & machine tools Innovations in textiles & leathers

Economic Environment

The economic environment of various countries mostly & directly influences international business. Totality of economic factors, such as

Employment Income Inflation Interest rates Productivity Wealth That influence the buying behavior of consumers and firms.

Factors Affecting the Economic Environment

Inflation and deflation: Inflationary and deflationary pressures alter the purchasing power of money. This has a direct impact on consumer spending, business investment, employment rates, government programs and tax policies. Interest rates: Interest rates determine the cost of borrowing and the flow of money towards businesses. Exchange rates: This impacts the price of imports, the profits made by exporters and investors and employment levels (also through the impact on the tourism industry). Monetary and fiscal policy: This helps in attaining full employment, price stability and economic growth. The economic environment is also influenced by various political, social and technological factors. These include a change in government and the development of new

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Political /Government Environment

It influences the way a firm conducts its business, domestically & internationally. It differs with each country. The IB manager should be aware of the political environment of the Host & Home country.

Political system

By political system we mean the type of Govt. in the country. Two ideologically opposing forms of government are

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Dem ocracy

Tot alit arianism

Democracy Democracy

It is a system of government by an individual or a political party with no participation in the decision making by the citizens.


is a system of Government in which people , directly or indirectly through elected representatives , take part in decision making.

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Right to freedom of expression , opinion & organization ,fair judiciary system

All the constitutional rights to the citizens under democracy i.e freedom of expression & regular elections are denied to them

Types of Totalitarianism
Com m unism Theocrat ic




Govt. owns all property & makes decisions regarding production & CHINA , LAOS, NORTH KOREA , distribution of goods & services. It CUBA & VIETNAM aims at equal distribution of wealth. THEOCRATIC IRAN & SAUDI ARABIA It is rule of a religious leader , party or group.


A political party that represents the interest of a particular tribe rules the country. That tribe need not be the majority tribe in the country. The military controls the government and makes decisions


International political relations

The political relations between two countries also determines the nature & extent of trade between the countries .

Relations between the government and the business

For the Host country government , permitting foreign firm to have business with the country or establishing operations in the country may be a means of achieving its objectives like increasing investments.

Political stability

The major risk in political environment is political instability. The policies framed by a Govt may be set aside by a subsequent government.

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Demographic environment

Demographic factors of the market in which a firm operates, and which are used to segment the target population for effective marketing. Statistical socio-economic characteristic or variables of a population, such as age, Gender, education level, income level, marital status, occupation, religion, birth rate, death rate, average size of a family, average age at marriage. A census is a collection of the demographic factors associated with every member of a population.

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Demographic Factors








Categorization of the population of communities or countries by age groups.


Gender comprises a range of differences between men and women.


In economics, income distribution is how a nation’s total economy is distributed amongst its population.





Status hierarchy in which individuals and groups are classified on the basis of esteem and prestige acquired mainly through economic success and accumulation of wealth. Four common social classes (in their descending order) are:

Upper class Middle class Working class Lower class.


Physical Factors/Enviornment
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Geographic Natural resources

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