International Business

1 International Business A business enterprise is an organization involved in the provision of goods and services whose sole motivation is to make a profit. It may exist in the form of a sole proprietorship, corporation, or partnership.

Globalization and technological advancements have allowed business enterprises to expand exponentially thus leading to their transformation into international businesses.

However, the environment in which the business operates has a major impact on its performance. Several factors affect the success of a business enterprise in the international business environment. These can be divided into two categories; internal factors and external factors.

The contemporary business environment is fast-changing and competitive; it is, therefore, important for business enterprises to understand them to create effective strategies.

External Business Environment Business enterprises do not exist in a vacuum; their internal and external environment affects their objectives, performance, and strategies. An enterprise's external environment can be analyzed through a PESTLE analysis (Brătianu, 2015). The external environmental factors include; political factors, economic factors, technological factors, legal factors, environmental factors, and sociocultural factors.

Political Factors This aspect of PESTEL examines how the government influences the running of the business. In the international business environment, political factors are a major contributor to the growth and development of the business enterprise. Political issues can often not be controlled or avoided by the business, and the most a business can do in reaction to an

2 unfavorable political climate is to lobby against certain regulations. In highly unfavorable political situations, the business is forced to shut its operations in the country. Political instability affects whether the company will be able to achieve its long term plans with ease, or whether it will be forced to adopt short-term, highly changeable strategies. When selecting a country to operate in, a business must conduct a thorough analysis of its political environment, and select countries that have a long history of political stability.

Economic Factors Economic factors refer to the direction, strength, and structure of the economic system in which the business enterprise operates. They are a crucial determinant of the success or failure of a business enterprise. Economic factors include; labor costs, tax rates, monetary policy, fiscal policy, income equality, employment rates, and exchange rate fluctuation. When there is an economic recession or inflation, the market has low purchasing power and this reduces demand for the business’s products and services (Iqbal, 2011). When the economy is stable, demand rises for its products and services, thus leading to higher revenues. Countries that have a stable economic system are the most favorable for investment, while those that have a volatile economic environment should be avoided.

Social and Sociocultural Factors Social and cultural factors play a role in determining the level of demand for a product or service. These factors include; work culture, customs, social classes, people's attitudes, and personal values, cultural values and ethics. Sociocultural forces impact the type of goods and services that are offered to the market for sale. To ensure that they design products that match the market's tastes and preferences, international businesses need to research the market constantly to design products and services that meet their needs.

3 Technological Factors This aspect of PESTEL has become increasingly crucial to businesses as a result of globalization. In international business, rapid changes in technology can render a firm’s products or services obsolete, therefore it is crucial to invest resources in staying up to date with advancements in technology (Thompsen, 2010). For instance, in both developed and developing economies, most adults own an internet-enabled device, thus facilitating the growth of e-commerce globally, which in turn enables businesses to increase their ability to generate higher revenues. Depending on the organization’s ability to adapt to changes in technology, it may either create opportunities or pose a threat.

Legal Factors To facilitate their continuity and lawfulness, business enterprises must be conscious of the legal environment in which they operate because the country’s laws and regulations affect the businesses’ actions. The laws of a country affect such issues as the level of corruption, bureaucracy, and government policies on business operations. Adhering to domestic and international laws is crucial because it helps to preserve the enterprise’s reputation, by protecting it from lawsuits (Kahn, 2013). When operating internationally, the business needs to ensure that it obtains all the required licenses, permits, and documentation outlined by the law. The organization must adhere to the labor laws of the country, and also treats its customers and suppliers fairly.

Environmental Factors Environmental factors such as the weather and climatic conditions, the environment’s topography, infrastructure and availability of raw materials are crucial determinants of an organization’s success in the international business environment. Environmental factors occur

4 naturally, thus cannot be controlled. The business needs to select an environment that is conducive to its growth. Due to the adverse effects of global warming, environmental consciousness is spreading globally, and businesses have to demonstrate that they employ environmentally sustainable methods of production and distribution. In the future, it will be essential for businesses to implement methods that work towards reducing the emission of greenhouse gases.

Out of the six environmental factors discussed, political factors are the most important and impactful. The business has little to no control of the political climate of the country, and it has to adjust its structure and operations to adapt to the prevailing political conditions (Lussier, 2018). This PESTEL factor also has the most adverse effect on other factors.

Political instability affects the economy, hinders technological advancements, makes laws and regulations ineffective, and causes disunity thus deterring social progression.

Internal Business Factors While the business cannot control or predict external environmental factors, it has significant control over its internal environment. Some of the internal factors include; leadership, culture, and business strategy Leadership The leadership of the business determines its ability to take advantage of opportunities and overcome challenges in its environment. When a business has sound leadership, it can resolve conflicts faster, and make decisions that favor its growth and development. The leader should ensure that they create a conducive environment for teamwork and a favorable organizational culture by allowing employees to participate in the decision-making process.

Business Strategy

5 The business strategy is designed and implemented by the management and leadership of the business. It guides the decisions made to achieve the business' short and long term goals and is subject to change depending on the results it creates (Verweire, 2014). It is crucial to create an appropriate and effective business strategy to enhance its chances of success in the short and long term.

Culture Culture refers to the unique characteristics that can be used to identify a particular group of people. These include their languages, principles, values, traditions, and customs.

Globalization has led to ethnic, cultural and racial diversity in the business arena. In international business, various cultures interact, resulting in cultural differences. In business, differences in culture play a major role in determining how people communicate, perceive power, handle conflict, and keep time.

Business enterprises that operate internationally require effective human resource management to manage the various cultures, employee roles, as well as their different personalities. The culture of an international business enterprise is distinctly different from a domestic enterprise (Hays-Thomas, & Agars, 2013). Hofstede’s model opines that national culture comprises six dimensions. These are; uncertainty avoidance, long/short term team orientation, masculinity/femininity, power distance, and indulgence/restraint.

In international businesses, it is essential to focus on creating cultural integration and effectively addressing problems that may arise from the intermingling of cultures. The cultural aspect of an organization influences its belief system. The belief system entails the work ethic, assumptions, attitudes, and expectations that people hold about the business. In international businesses, human resource is responsible for ensuring that the workforce has a

6 positive belief system. This involves designing the culture that is most suitable for the organization as soon as the need for a change in culture becomes evident, ensuring the workforce understands what is expected of them and continuously monitoring the adoption of the new culture.

Goldman Sachs is one of the multinational companies that have over the years learned how to manage its diverse workforce successfully through effective human resource management practices (Morden, 2017). It recognizes that its employees are its most crucial asset, and being an international company, it can only meet its diverse clients' needs through employing a diverse workforce. To achieve its international success and continued growth, the organization recruits the most talented and diverse workforce and encourages them to retain their culture which in turn enables it to diversify its talent. Thus, instead of creating a culture of conformance, Goldman Sachs focuses on creating a culture of excellence and acceptance of diversity.

Conclusion The internal and external environments of the business are crucial determinants of its performance. At each stage, every action it takes is determined by its environment. Proper research on the external and internal environments will enable the business to align its resources towards making the most of the opportunities that present themselves and also overcoming challenges. The management of an organization should develop structures and strategies to address the dynamics of its internal and external environment to ensure its continued success.

7 References Brătianu, C. (2015). Organizational knowledge dynamics managing knowledge creation, acquisition, sharing, and transformation. Hershey, PA: Information Science Reference, An Imprint of IGI Global.

Hays-Thomas, R., & Agars, M. (2013). Managing Workplace Diversity and Inclusion.

London: Taylor and Francis.

Iqbal, T. (2011). The Impact of Leadership Styles On Organizational Effectiveness. Munich: Grin Verlag Kahn (2013). Global Brand Power: Leveraging Branding for Long-Term Growth. Wharton Digital Press Lussier, R. N. (2018). Management Fundamentals: Concepts, applications, and skill development. Thousand Oaks, CA: SAGE Publications.

Morden, T. (2017). Principles of strategic management. New York: Routledge.

Thompsen, J. A. (2010). Achieving a triple win: Human capital management of the employee lifecycle. London: Routledge.

Verweire, K. (2014). Strategy implementation. Routledge.