THE INTERNATIONAL

BUSINESS
ENVIRONMENT
Module 3
Learning Outcomes

After completing the module, the students can:

1.Understand why there is a need to expand globally and the risks it
comes with it.
2.Identify the factors affecting International business environment.
3.Learn the different analyses that are essential for an effective
business strategy.
4.Discuss the different influences affecting an International business.
 Overview of the International Business
Environment

 International business is an enormously relevant facet of the modern economy, and will only
become more integrated into core business strategy as technology continues to progress.
 International business is simply the summation of all commercial transactions that take
place between various countries (crossing political boundaries).
 This is not exclusively limited to the domain of business, as NGOs, governments, and coops
also operate across country borders with a variety of objectives (aside from simple
profitability).
 Why Expand Globally?

Global expansion is costly and complex. To offset these costs and risks, organizations
must have strong reasons for developing a global strategy. These reasons generally fit
one (or more) of the following three strategic areas:
 
 Global Concentration – Depending upon the competitive concentration of a given
industry in a given region, it may make sense to enter a market where competition is
relatively scarce (and demand is high).
 Global Synergies – Some organizations have highly developed competencies that are
easily scaled. In these situations, global expansion means natural synergy.
 Global Strategic Motivations – Other reasons for expansion to a given country may
exist strategically, such as developing new sourcing sites for production or acquiring
strategic assets in a given region.
External Factors Impacting Expansion

International expansion can be a costly and complex procedure. Before considering

such a significant strategic move, management must weigh the external factors that
will impact success during a global transition. These include:
 
 Socio-cultural: The social environment of a given region can have a
significant impact on success. Food companies are highly impacted by
this – certain cultures prefer certain types of foods.
 Geographic/Environmental – For example, skiing equipment may not
do so well in regions without snow or mountains. Oil companies can only
source oil from resource-rich regions.
 External Factors Impacting Expansion

International expansion can be a costly and complex procedure. Before considering such a
significant strategic move, management must weigh the external factors that will impact
success during a global transition. These include:
 

 Legal/Political – Some countries have high barriers to entry, complex tax

rates, and/or unclear legislative practices. Ease of doing business is critical here.
 Economic – The standard of living is different from region to region, and
recognizing the value of a given market in terms of spending power, currency,
and market size is critical to deciding upon expansion.
 Technology – Access to internet, electricity, clean water and a variety of other
technological dependencies must be considered prior to entry if the
organizational operations rely on easy access.
External Factors Impacting Expansion

Weighing the pros and cons of entering a given reason, and calculating projected cash flows, costs, and
required returns on investment are central financial considerations to entering a new international market

Volume of Merchandise Exports: Despite a dip in 2008 as a result of the banking crisis and
subsequent recession, the volume of global exports continues to rise even over this short time period.
Globalization is an enormous source of growth.
 Multi National Corporation (MNC)
 MNC is a corporate organization that has its operations and facilities in more than one
country.
 MNC is a large corporation which produces and sells its goods and services in number of
countries. Generally, MNC firm has a centralized head office and number of offices in
other countries.
 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.
Major factors affecting International
Business

External influences on a business

 

Political factors:
 
Various political factors affect the international factors. Political factors such as
changes in tax rates, policies and actions of government, political stability of
country, foreign trade regulations etc. affects the working of an international
business firm. Lack of political stability in the country directly impacts the operations
of business firm. Also, various tax policies and government initiatives sometimes
hinders the expansion of business in other countries. Thus, effective political
environment of business influences the growth of business firm (Shaw, 2018).
 
Major factors affecting International
Business

External influences on a business

 
Economic factors:
 
Economic factors relates to the economic system of the country where the firm
has its operations. Various economic factors such as inflation rate, interest rate,
income distribution, employment level, allocation of government budget, etc.,
directly impacts the operations of business firm (NDUNGU, 2012). Various economic
factors such as purchasing power of customers also determines the demand of
various products and services.
 
Major factors affecting International
Business

External influences on a business

 
Legal factors:
 
Legal factors relate to the legal environment of the country in which firm
operates. Different laws prevail in different countries and international business
firms have to abide by the laws of each country. Laws’ relating to age and disability
discrimination, wage rates, employment and environment laws affects the working
of business firms. Along with this, various international lending agencies affects the
legal culture and working policies of business firm
 
Major factors affecting International
Business

External influences on a business

 
 
Social factors:
 
Social factors such as education, awareness and trends and status of people in
the society affects the consumer behavior to purchase various goods and services.
Also, Social environment and culture such as customs, lifestyles and values differs
from country to country which further directly impacts the international business.
 
Major factors affecting International
Business

External influences on a business

 
 
Environmental factors:
 
Environment factors such as weather, climate change, temperature etc. affects
the business firm and the demand pattern of various goods and services. increasing
environment awareness has made this external environment factor a significant
issue to be considered by business firms. Move towards environment friendly
products and services also have affected the demand pattern of various goods and
services.
Major factors affecting International
Business

External influences on a business

 
 

Technical factors:
 
Technological changes in the industry have both positive and negative impacts
on the working of business firms. Technological changes and development of
automated work processes helps in increasing the efficiency of business processes.
However, technological changes also threaten the demand of various products and
services in the industry.
SWOT Analysis
 SWOT analysis is one of the most important business analysis tools that helps in

understanding the internal and external business environment of a firm.

 SWOT analysis refers to the framework that involves analysis of the competitive position of

the business firm which further is useful in conducting strategic planning for business firm.

 Internal environment analysis of business firm involves analysis of the strengths and

weaknesses of a business organization that are also within the control of business firm.

 External analysis includes analysis of opportunities and threats of business organization

which are external to business firm.

 SWOT Analysis
Strengths:
 
Strengths are internal attributes of the company that helps in achieving strategic business
position through distinct competencies. Various strengths of business firm include strong
employee attitude, excellent customer service, established brand image etc.
 
Weaknesses:
 
Weaknesses are the internal constraints of business firm that stops an organization to
achieve the competitive position in industry. Thus, weaknesses are the areas which needs
improvement by the business firm. For instance, weak brand image and lack of capital of
business firm restricts the business to achieve competitive advantage (Parsons, 2019).
 SWOT Analysis
Opportunities:
 
Opportunities are the favorable external factors that can help business firm to achieve
competitive advantage. For instance, expanding business in untapped markets and gaining
large number of customers is a good opportunity for business firm.
 
Threats:
 
Threats refer to negative external environment forces that can harm a business
organization. Business firms lack control over external environment threats which may cause
number of problems and difficulties for business firm. For instance, change in behavior of
consumers or entry of new firms in industry (SWOT, 2019).
 STRENGTHS WEAKNESSES OPPORTUNITIES THREATS
Well known retail brand with larger Lack of presence in Expanding business in Reduction in
market share in industry. other economies developing economies purchasing power of
customers through
global recession
Offers Diverse range of products Lack of brand Decreasing cost of Increase in cost of
and services under one roof Awareness among local distribution and various raw
people increasing profit margins materials

Strong brand imageand reputation Low pricing of Expanding product base Huge competition from
products by offering gluten free and other
organic products dominatingretail
firms
Taking example of Woolworths:

Strong brand imageand reputation   Expandingcustomer base Increase in prices of

SWOT Analysis

organic produce
Leadingposition inretail market   Promoting goods over New regulations by
social media and other government authorities
online channels
Economics of scale due to      
operations at large scale
Lower bargaining power of suppliers      

Convenient shopping      
experience to consumers
Internal influences on a business

 Microenvironment of business includes various internal environment factors of

business firm that affects the performance and decision making of an
organization.
 Various microenvironment factors of international business include customers,
competitors, distribution channels, suppliers, public, etc. Thus,
microenvironment factors are factors that exist in the immediate operation
environment of business and directly impact the operations of business
organization.
 Micro factors of business also involve various factors relating to resource
availability and usage of resources (Pratap, 2019).
Internal influences on a business

Following is the detail discussion of various microenvironment factors of business:

 
Impact of customers on business:
 
Customers are important microenvironment factor of business that impacts the operations of
business organization. Customers have gained lot of importance in 21st century. Business firms in
current times cannot successfully run a business without fulfillment of needs and wants of
customers. Customer engagement also influences the competitive position of business firm . For
instance, Woolworths has taken various initiatives to provide convenient services to customer.
Woolworths also has developed online portal to provide convenient shopping facility to customers.
Woolworths also ensures that customers get fresh fruits and vegetables. Along with this, Woolworths
is known for providing superior services to customers at reasonable prices.
Internal influences on a business
Following is the detail discussion of various microenvironment factors of business:
 

Suppliers factors affecting business:

 
Suppliers provide various raw materials, technology, human resources and other components to
the company. international business firms operate on large scale and procure resources and other
supplies from number of suppliers. It is must for international business firm to have well managed
supply chain. affects the selection of suppliers by the business firm. Also, price charged by various
suppliers directly impacts the cost structure of various goods produced by the business organization.
Internal influences on a business
Following is the detail discussion of various microenvironment factors of business:
 

Competitors factors affecting business:

 
Various competitive factors also affect the working of company. Large number of competitors
exists in the industry and initiatives undertaken by competitors directly influence the working of
company. Market share of the competitors also affects the profitability of business firm. For instance,
Woolworths has reduced its prices as a result of reduced prices of ALDI and Coles stores. Also,
Woolworths also has taken number of initiatives to move toward more uniform pricing policies
 
Industry rivalry affecting business:
 
Rivalry among the existing competitors also affects the operations of business firms. Behavior of
competitors affects the operations of business organization. Competitive rivalry also pressurizes
business firms to offer quality produce to customers at reasonable prices. For instance, huge
competition exists in the retail industry and various dominating firms such as Coles supermarkets.
Porter 5 forces analysis
- one of the important
framework that helps in
evaluating the competitive
position of business firm.
Various factors influence
the profitability of
business firm. Rivalry
among existing
competitors, chance of
entry of new firms,
availability of substitute
products, availability of
customers and suppliers
etc. directly affects the
profitability of business
organization
Porter 5 forces analysis
Competition in industry:
 
Competition in the industry refers to the number and ability of competitors existing
in the industry. Huge competition in the industry and number of equivalent products
and services lowers the power of business firm. However, lower rivalry among existing
firms helps business firm to charge higher price for various products and services from
customers.
 
Threat of new entrant:
 
This relates to the potential of other firms to enter the industry. lower time and
money required in setting up the business increases the threat of new entrants being
faced by the company. Lower potential of other firms to enter the industry increases
the power of existing firms to charge competitive price from customers.
 
Porter 5 forces analysis

Bargaining power of suppliers:

 
It refers to the ability of company suppliers to charge higher price for inputs served
to the business organization. Number of suppliers, quality and uniqueness of supplier
products and switching cost of company to other suppliers impacts the bargaining
power of suppliers in industry. Fewer suppliers in industry increases the bargaining
power of existing suppliers.
 
Bargaining power of customers:

Bargaining power of buyers refers to the ability of buyers to lower the price of products
and services being offered to them. Number of business firms, number of buyers,
amount of purchase, switching cost to other organizations etc. determines the
bargaining power enjoyed by the buyers.
 
Porter 5 forces analysis

Threat of substitute products:

 
Substitute products refer to goods that can be substituted in place of
other products and services. Availability of substitute produces increase
threat of substitute being faced by business firm. Availability of
substitute goods also determine the price of goods charged by the
company.
Porter 5 forces analysis
Following table shows the porter five force analysis model for Woolworths:

PORTER FIVE FORCES DETAIL

Competition in the industry Huge competition exists among dominating firms in retail sector in New Zealand and Australia. Coles, ALDI, Wes farmer
and Woolworths are some of the dominating firms in retail industry. These firms compete against each other to capture
larger share in market and to increases their profitability.

Threat of new entrants Threat of new entrants is relatively low for the Woolworths due to development of leading positon in the industry. Also,
huge investment is required in setting up chain of grocery stores which further lowers down the threat of new entry being
faced by Woolworths.
Bargaining power of suppliers Woolworths and Coles holds around 80 % of market share in Australian retail industry. The larger part of supply produce
in Australia is purchased by these firms which provides that Woolworths and Coles are major purchaser of supplier
produce in Australia. Also, Woolworths has maintained effective relation with various suppliers. This provides that
bargaining power of Woolworths suppliers is moderate.

Bargaining power of buyers Presence of large number of retail firms operating in Australia and other countries increases the bargaining power of
customers. Customers make purchase decision for various grocery items by comparing the price charged by various retail
organizations. Woolworths has charged reasonable prices for its quality and fresh produce which reduces the bargaining
power of buyers. Also, online portal offers fixed pricing system to customers. Thus, bargaining power of Woolworths
customers is moderately low.

Threat of substitute products Threat of substitute products is relatively moderate for Woolworths as retail and dairy products are available at various
retail stores. However, Woolworths offers fresh produce to customers which induces customer to purchase products of
Woolworths.
Internal Factors affecting business:

 Internal factors are factors within the control of company and are

referred to both tangible and intangible factors of organization

which influences the strengths and weaknesses of an organization.

 Various internal factors that affects an organization are discussed as

follows:

 
 Internal Factors affecting business:
Human resources:
 
Human resources are one of the biggest treasure of an organization as
whole operations to the company depends on its human resources. Effective
and hardworking staff members helps in achieving competitive position in the
industry whereas lack of skilled staff members reduces the profitability of
business organization and may lead to closure of business (Internal &
External Environmental Factors, 2019). Thus, working of an organization
depends on efficiency, effectiveness, performance and skill base of staff
members. Further, Woolworths has hired more than 11500 employees in its
operational departments to ensure that best quality of services are provided
to customers.
 
 Internal Factors affecting business:

Financial resources:
 
Financial resources refer to the funds available with the company to carry
out various operations in the organizations. Funds are the base for growth
and competitive position in the industry. Lack of availability of this resource
leads to failure and closure of business organization. Woolworths has gained
revenue of $39.568 billion in 2019.
 
 Internal Factors affecting business:
 
Innovation capabilities:
 
Innovation refers to the ability of business organization to introduce new
ideas into the business operations. Innovation capability is also one of the
important factor that affects the operations of business organization. For
instance, Woolworths has made use of its innovation capability in all its
operations to increase its reputation in the industry and to provide
convenient services to customers.

.
 Internal Factors affecting business:

Organizational structure:
 
Type of organization structure shapes the employee behavior in
organization and also influences the type of communication taking place in
organization. Team based structures helps in free flow of information
(Johnson, 2019). Woolworths has adopted hierarchy based organization
structure to maintain control of managers over all the operational activities
and to ensure that all rules and regulations are strictly followed in
organization
 
 Internal Factors affecting business:
 
Value proposition:
 
Value proposition is the belief of customers as to how the products and
services of organization will meet the expectations of customers. Value
proposition also influences customers to purchase goods from the
organization. Currently, Woolworths price-based marketing campaign has
helped in achieving “cheap cheap” slogan for the new value proposition.
ANY QUESTIONS?
 Learning Assessment
Activity
• Near the end of 2015, a number of accidents, also called as "sudden unintended
acceleration", occurring in the Philippines involving the Mitsubishi Challenger model,
locally marketed as Montero Sport, were reported causing concerns regarding the
safety of the car model and filing of several class action lawsuits against Mitsubishi
Motors Philippines.
• As of August 2020, over 100 complaints against Mitsubishi Motors Philippines were filed
by Montero Sport owners. The incident has since been the subject of an
investigation by the Department of Trade and Industry (DTI). There are also several
sudden unintended acceleration incidents involving 2009 to 2011 Montero that date way
back in the year 2010 to 2012. However, no such incidences have surfaced in other
countries..
 
• Prepare a SWOT analysis for the Mitsubishi Montero’s Sudden Unintended Acceleration.