Question

Explain the external environment in which international business operates and evaluate its impact on business strategy.

Answer 1

Various companies are involved in transacting their goods, services and capital across the national borders and are affected by number of factors. various restrictions are also imposed on companies that are transacting their business at international level. various internal and external factors directly impact the working of these business firms. Various external environment factors directly affecting the working of large MNCs include social conditions of economy, political and legal factors, etc. However, internal factors can be controlled by the management team of companies by taking various strategic initiatives.

The international factors are influenced by various political factors. Political factors such as tax rate changes, government policies and actions, country political stability, foreign trade regulations, etc. affect the operation of an international business enterprise. Lack of country political stability directly impacts the firm's operations. Additionally, various tax policies and government initiatives sometimes impede business expansion in other countries. Thus, an effective business political environment influences the growth of companies

Economic factors relate to the country where the firm has its operations in the economic system. Different econocmi factors, such as inflation rate, interest rate, income distribution, level of employment, government budget allocation, etc., have a direct impact on business operations. Different economic factors such as customer purchasing power also determine the demands of different products and services

Legal factors relate to the country in which the firm operates. In different countries different laws prevail and international business firms have to abide by each country's laws. Laws concerning discrimination in terms of age and disability, wage rates, employment and environmental laws affect the work of business firms. In addition, various international lending agencies affect business firm's legal culture and working policies