C2 - ESPENILLA Auditing

INTERNATIONAL BUSINESS
ENVIRONMENT
INTERNATIONAL BUSINESS AND TRADE
INTERNATIONAL BUSINESS ENVIRONMENT
• An IBE refers to the surrounding in which international companies run
their businesses. Therefore, people at the managerial level must work on
the factors of the International Business Environment.
• The IBE refers to the intricate economic, political, legal, and cultural
network influencing how organizations engage in international business
activities. It comprises external and internal factors that impact a
company’s success or failure in various markets.
• This concept involves comprehending the global influences that affect
businesses of all sizes. These components shape how companies
conduct their operations and decisions, encompassing macroeconomic
trends and geopolitical tensions. With globalization, businesses have
expanded beyond local or regional markets, bringing about new
opportunities and challenges.
BUSINESS ENVIRONMENT VS INTERNATIONAL BUSINESS
• International business is an exchange of goods

and services that operates across national
borders between two or more
countries. International business is also known
as Globalization, whereas a Business
Environment is the surroundings where global
companies operate.
FORMS OF BUSINESS ENVIRONMENT
• IMPORT AND EXPORT- Exporting refers to the selling of goods
and services from the home country to a foreign nation.
Whereas, importing refers to the purchase of foreign products
and bringing them into one's home country.
• LICENSING- An international business licensing agreement
involves two firms from different countries, with the licensee
receiving the rights or resources to manufacture in the foreign
country. Rights or resources may include patents, copyrights,
technology, managerial skills, or other factors necessary to
manufacture the good.
FORMS OF BUSINESS ENVIRONMENT
• FRANCHISING- as a marketing method in which the owner of a
product or service, known as the "franchisor," offers the right to operate
and manage his product and service to others, the "franchisees,“.
• JOINT VENTURE- is a contract which is formed for the mutual benefit
of two or more companies or entities. Usually a new entity or
collaboration is formed as a result of a joint venture. The companies or
entities agree to share different resources such as assets, intellectual
property for the mutual benefit..
• FOREIGN DIRECT INVESTMENT- is investment into production in a
country by a company located in another country, either by buying a
company in the target country or by expanding operations of an
existing business in that country.
ADVANTAGES OF INTERNATIONAL
BUSINESS ENVIRONMENT
Helps in expanding the business
Exposure to more customers
Helps in the proper management of the product life cycle .
The product life cycle is defined as four distinct stages:
product introduction, growth, maturity, and decline.
Helps in mutual growth
Technology advantages
New business opportunities
Proper use of resources
IMPORTANCE OF INTERNATIONAL
• Exports Increase Sales. Exporting opens new
markets for a company to increase its sales.
Economies rise and fall, and a company that has a
good export market is in a better position to weather
an economic downturn. Furthermore, businesses
that export are less likely to fail. It's not only the
exporting companies that increase sales; the
companies that supply materials to the exporters
also see their revenues go up, leading to more jobs.
•Exports Create Jobs. A
company that increases its
exports needs to hire more
people to handle the higher
workload.
• Imports Benefit Consumers. Imported
products result in lower prices and
expand the number of product choices
for consumers. Lower prices have a
significant effect, particularly for modest
and low- income households.
• Improved International Relations.
International business removes rivalry
between different countries and
promotes international peace and
harmony. Mutual trade creates a
dependence on each other, improves
confidence and fosters good faith.
SOCIAL AND CULTURAL
ENVIRONMENT
SOCIAL ENVIRONMENT OF BUSINESS
• Social environment of business means all factors
which affects business socially. Every business
works in a society, so societies has different
factors like family, educational institutions and
religion affects the business. It includes the
culture that the individual was educated or lives
in and the people with whom they interact. Social
factor include reference groups, family, role and
status in the society.
CULTURAL ENVIRONMENT OF BUSINESS
• Cultural Environment is an environment
which affect the basic values, behaviors,
preferences of the society, all of which have
an effect on consumer marketing decision.
Cultural aspects include aesthetics,
education, language, law and politics,
religion, social organization, technology
and material culture, values and attitude.
SOCIO-CULTURAL ENVIRONMENT
• A set of beliefs, customs, practices, and
behavior that exist within a population.
International companies often include an
examination of the socio-cultural
environment prior to entering their target
markets. Socio-cultural factors are
customs, lifestyles and values that
characterize a society.
FACTORS WHICH AFFECT SOCILA AND
CULTURAL ENVIRONMENT
Demographic factor
Religion
Social responsibility
Education
Family
Taste preference
Natural factor
Technological factor
Income and lifestyle
Health and safety factor
ELEMENTS OF CULTURE
• Attitudes and Beliefs: The set of attitudes and beliefs of a culture will
influence nearly all aspects of human behavior, providing guidelines and
organization to a society and its individuals.
• Attitudes towards Time: Everywhere in the world people use time to
communicate with each other. In international business, attitudes
towards time are displayed in behavior regarding punctuality, responses
to business communication, responses to deadlines, and the amount of
time that is spent waiting in an outer office for an appointment.
• Attitude towards Work and Leisure: People’s attitudes towards work
and leisure are indicative of their views towards wealth and material
gains. These attitudes affect the types, qualities and numbers of
individuals who pursue entrepreneurial and management careers as
well.
ELEMENTS OF CULTURE
• Attitude towards Achievement: In some cultures, particularly those with high
stratified and hierarchical societies, there is a tendency to avoid personal
responsibility and to work according to precise instructions received from
supervisors that are followed by the latter. In many industrial societies, personal
responsibility and the ability to take risks for potential gain are considered
valuable instruments in achieving higher goals.
• Attitudes towards Change: The international manager must understand what
aspects of a culture will resist change and how the areas of resistance differ
among cultures, how the process of change takes place in different cultures and
how long it will take to implement change.
• Attitude towards Job: The type of job that is considered most desirable or
prestigious varies greatly according to different cultures. Thus, while medical and
legal professions are considered extremely prestigious in the United States, civil
service is considered the most prestigious occupation in several developing
countries including India.
TECHNOLOGICAL
ENVIRONMENT
TECHNOLOGICAL ENVIRONMENT
• The technological environment includes factors related to the
machines and materials used in manufacturing services and
goods. As organizations do not have control over the external
environment, their success depends on how they will adapt to the
external environment. A significant aspect of the international
business environment is the level and acceptance of technological
innovation in countries. The last decade of the twentieth century
saw significant advances in technology, and it is also continuing in
the twenty-first century. Technology often gives organizations a
competitive advantage. Hence, organizations compete to access
the latest technology, and international organizations transfer
technology to be globally competitive.
• The technological environment of business has
changed the way in which businesses function.
Advancements in information technology have almost
taken over every department of the organization.
Technology has brought in a transformation through
which companies collect, record, retrieve and utilize
data and which also helps them in coming up with
ground breaking business strategies. Through available
data, companies are able to monitor and evaluate
customer trends and their demands for a particular
product.
• Technology is not only useful for collecting and using
data but it is also being used by organizations to
analyze data and make meaningful conclusions as well
as informed decisions. Having more focus on the
customers, business strategies will certainly prove out
to be effective for the success of an organization.
Changes in technology affect how a company will do
business. A business may have to change their
operating strategy as a result of changes in the
technological environment.
THE IMPACT OF TECHNOLOGY IN A
• Impact on Human Resources. Experts have long
predicted technology will someday replace many of the
jobs done by humans. However, history has shown that
as jobs become obsolete, new opportunities open up.
Technology has also transformed hiring, with the
internet allowing workers to complete their duties from
home or another remote location. This has the added
benefit of giving businesses access to a global talent
pool that allows them to hire specialized, experienced
workers at affordable rates.
• Impact on Customer Outreach. Through social media
and the internet, reaching consumers is easier than
ever. Using a do-it-yourself website tool and various
social platforms, even the newest small business can
post content that helps interested customers find them.
Instead of paying third parties for advertising in print or
electronic media, today’s businesses are in charge of
their own customer outreach. The result is a reduced
cost that levels the playing field between large
corporations and startups.
• Impact on Operating Costs. Another area where the
technological environment has evened things out is the
overhead associated with running a business. Companies sell
their items online, which means they do not need a brick-and-
mortar storefront. The cost of starting a new business has
dropped dramatically in recent years, since founders can now
launch a venture from home as a side gig. There is no need to
travel to land new clients, because researching and reaching
out to potential customers can all be done online. Moreover,
instead of hiring a bookkeeper or an assistant, entrepreneurs
find that software handles all of the early-stage functions they
need.
• The Day-to-Day Impact on Business. Today's
technology has completely changed some businesses
as well as creating entire business niches that never
even existed before. Business owners run their
companies from laptops, tablets and smartphones,
never even considering opening a brick-and-mortar
presence.
ECONOMIC ENVIRONMENT
ECONOMIC ENVIRONMENT
• The economic environment refers to all the
economic factors that affect commercial and
consumer behavior. The economic environment
consists of all the external factors in the
immediate marketplace and the broader
economy. These factors can influence a business,
i.e., how it operates and how successful it might
become
MICROECONOMIC FACTORS VS
MACROECONOMIC FACTORS
Microeconomic factors. The microeconomic environment refers
to things that happen at the individual company or consumer
level. Microeconomic factors do not affect the whole economy.
Macroeconomic factors. The macroeconomic environment, on

the other hand, refers to things that affect the entire economy.
Macroeconomics is concerned with general or large-scale
economic factors, such as Unemployment, Inflation, Interest
rates, GDP growth (Gross Domestic Product), Taxes,
Exchange rates, Levels of consumer confidence, and Savings
rates.
WHY IS THE ECONOMIC ENVIRONMENT
IMPORTANT?
• The economic environment of a business will play
a pivotal role in determining the success or failure
of a business. Let us first consider some
macroeconomic factors. If interest rates are too
high, the cost of borrowing may not permit a
business to expand. Sophisticated industrial
products require sophisticated industries as
buyers.
IMPORTANT?
• Economic Systems. There are three types of
economic systems: capitalist, socialist, and
mixed. This classification is based on the
dominant method of resource allocation: market
allocation, command or central plan allocation,
and mixed allocation, respectively.
IMPORTANT?
• Market Allocation. A market allocation system is
one that relies on consumers to allocate
resources. Consumers “write” the economic plan
by deciding what will be produced by whom. The
role of the state in a market economy is to
promote competition and ensure consumer
protection.
IMPORTANT?
• Command Allocation. In a command allocation
system, the state has broad powers to serve the
public interest. These include deciding which
products to make and how to make them.
Consumers are free to spend their money on what
is available, but state planners make decisions
about what is produced and, therefore, what is
available. Because demand exceeds supply, the
elements of the marketing mix are not used as
strategic variables.
IMPORTANT?
• Mixed System. There are, in reality, no pure
market or command allocation systems among
the world’s economies. All market systems have a
command sector and all command systems have
a market sector; in other words, they are “mixed”.
In a market economy, the command allocation
sector is the proportion of Gross Domestic
Product (GDP).
IMPORTANT?
• The International Economic System. Several factors
have contributed to the growth of the international
economy post World War II. The principal forces have
been the development of economic blocs like the
European Union (EU) and then the “economic pillars”–
the World Bank (or International Bank for
Reconstruction and Development to give its full name),
the International Monetary Fund (IMF) and the evolution
of the World Trade Organization from the original
General Agreement on Tariffs and Trade (GATT).
IMPORTANT?
• Income and Purchasing Power Parity around
the Globe. When a company charts a plan for
global market expansion, it often finds that, for
most products, income is the single most valuable
economic variable. After all, a market can be
defined as a group of people willing and able to
buy a particular product.
KEY ECONOMIC ISSUES THAT INFLUENCE
• Inflation. Inflation is the pervasive and sustained rise in the
aggregate level of prices measured by an index of the cost of
various goods and services. Inflation results when aggregate
demand grows faster than aggregate supply- essentially, too
many people are trying to buy too few goods, thereby
creating demand that pushes prices up faster than incomes
grow. Consider the impact of inflation on the cost of living.
Rising prices make it more difficult for consumers to buy
products unless their incomes rise at the same or faster
pace. Sometimes it is practically impossible. Either alone or
together, these measures slow or stop economic growth.
• Unemployment. The unemployment rate is the
number of unemployed workers divided by the total
civilian labor force, which includes both the
unemployed and those with jobs. In practice,
measuring the number of unemployed workers
actually seeking work in various countries is
difficult given the lack of a standard measurement
method. Generally, people out of work and unable
to find jobs depress economic growth, create social
pressure, and provoke political uncertainty.
• Debt. Debt, the sum total of government’s financial
obligations, measures the state’s borrowing from its
population, from foreign organizations, from foreign
governments, and from international institutions.
More recently, many countries have borrowed from
international lenders to finance their movement to
freer markets, a process of economic transition.
Many countries that began with this ambition but that
eventually failed then increasingly had to rely on
foreign debt.
• Income Distribution. GNI or PPP, even weighted
by the size of the population, can misestimate the
relative wealth of a nation’s citizens. Uneven
income distribution is not a problem of poorer
nations. There is a strong relationship between
skewed income distributions and the split
between those who live in urban settings versus
those who live in rural areas.
• Poverty. A related but separate issue concerns
poverty- the state of having little or no money, few
or no material possessions, and little or no
resources to enjoy a reasonable standard of life. In
many parts of the world, workers and consumers
struggle for food, shelter, clothing, and clean water,
health services, to say nothing of safety, security,
and education. Failure results in suffering,
malnutrition, mental illness, death epidemics,
famine, and war.
• The Balance of Payments. The Balance of
Payments (BOP), officially known as the
statement of International Transactions, records a
country’s international transactions that take
place between companies, governments, or
individuals. Managers use the BOP as a
comprehensive indicator of a country’s economic
stability.
POLITICAL ENVIRONMENT
POLITICAL ENVIRONMENT
• Political Environment is the state, government and
its institutions and legislations and the public and
private stakeholders who operate and interact with
or influence the system. The political atmosphere
should be good and very stable for a firm to
operate successfully. Political Environment forms
the basis of business environment in a country. If
the policies of government are stable and better
then businesses would get impacted in a positive
way and vice versa.
POLITICAL FACTORS
• Tax and economic policies: Increasing or
decreasing rate of taxes is a good example of a
political component. Government regulations may
raise the tax rate for some businesses and can
lower the same for others due to specific reasons.
This decision will directly impact businesses. This
is why maintaining a strategy which can deal with
such situations is very important.
POLITICAL FACTORS
• Political stability: Lack of political stability within a
country can significantly impact the operations of a
business. This can especially be true for
businesses that are operating on the global scale.
For instance, a hostile takeover can take over a
government. Eventually, such a situation will lead
to looting, riots and general disorder within the
environment. Such situations can disrupt business
operations and activities which can have a major
impact on its bottom line.
POLITICAL FACTORS
• Foreign Trade Regulations: Every business has a
need to expand business operation to other
countries. However, political background of a
country can influence the desire for a business to
expand its operations. Tax policies that are
particularly controlled by the government can
induce a particular business to expand operations
in different regions whereas; other tax policies can
hinder the process of business expansion for some
industries.
POLITICAL FACTORS
• Employment Laws: Employment laws are made
to protect the rights of employees and include
every aspect of employer/employee relationship.
Employment law is an aspect that is very complex
and involves several pitfalls as well. When
businesses’ are in touch with the latest
developments in this law, they can manage to take
their business in the right direction however, those
who get it wrong needs to be completely prepared
for the expensive results it will generate.
POLITICAL SYSTEMS
• In order to appraise the political environment of a country,
the knowledge of the form of government of that country is
essential. Basically, the government can be classified into
two categories – parliamentary (open) or absolutist
(closed). In the parliamentary form of government, the
citizens are supposed to be consulted from time to time
for learning about their opinions and preferences. In this
type of government the policies are thus intended to
reflect the desire of the majority segment of society. Most
of the industrialized nations and democratic countries can
be classified as parliamentary.
POLITICAL SYSTEMS
• The absolutist governments include monarchies and dictatorships. In
the absolutist system, the ruling regime dictates government policies
without considering citizens’ needs or opinions. The United Kingdom
is a good example of a constitutional hereditary monarchy. Despite
the monarch, the government is still classified as parliamentary.
Political system of many countries does not fall neatly into these two
categories. Some monarchies and dictatorships like Saudi Arabia
and North Korea have parliamentary elections. The erstwhile Soviet
Union had elections and mandatory voting but was not classified as
parliamentary because the ruling party never allowed any alternative
on the ballot. Countries such as the Philippines under Marcos and
Nicaragua under Somoza held elections but the results were suspect
because of the government’s involvement in fraud.
POLITICAL RISK ANALYSIS
• Confiscation is the process of a government’s
taking ownership of a property without
compensation.
• Expropriation differs from confiscation in that there
is some compensation though not necessarily just
compensation. More often than not, a company
whose property is being expropriated agrees to
sell its operations – not by choice but rather
because of some explicit or implied coercion.
POLITICAL RISK ANALYSIS
• Nationalization involves government ownership
and it is the government that operates the
business being taken over.
• Domestication, foreign companies relinquish
control and ownership either completely or
partially to the nationals. The result is that private
entities are allowed to operate the confiscated or
expropriated properties.
INDICATORS OF POLITICAL INSTABILITY
•Social Unrest. Social disorder is

caused by such underlying
conditions as economic hardship,
internal dissension and insurgency,
and ideological, religious, racial, and
cultural differences.
• Attitudes of Nationals. An assessment of the political
climate is not complete without an investigation of the
attitudes of the citizens and government of the host country.
The nationals’ attitude toward foreign enterprises and
citizens can be quite inhospitable. Nationals are often
concerned with foreigners’ intentions concerning exploitation
and colonialism, and these concerns are often linked to
concerns over foreign governments’ actions that may be
seen as improper. Such attitudes may arise out of local
socialist or nationalist philosophies, which may be in conflict
with the policy of the company’s home country government.
• Policies of the Host Government. Unlike citizens’
inherent hostility, a government’s attitude toward foreigners
is often relatively short-lived. The mood can change either
with time or change in leadership, and it can change for
either the better or the worse. The impact of a change in
mood can be quite dramatic, especially in the short run.
Government policy formulation can affect business
operations either internally or externally. The effect is
internal when the policy regulates the firm’s operations
within the home country. The effect is external when the
policy regulates the firm’s activities in another county.

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INTERNATIONAL BUSINESS

• International business is an exchange of goods

Macroeconomic factors. The macroeconomic environment, on

•Social Unrest. Social disorder is

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