Understanding International Business Environments

Understanding International Business Environments

Understanding the dynamics of the international business environment is a complex process because there are so many factors that can impinge the success or otherwise of an international business. The business environment is changing and its volatility is increased by the threat of competition and changing business culture. Most importantly, as MNCs venture into new and unknown grounds, they have to carefully consider respective countries’ risks that they are dealing with.

Political Ideologies and Economics

An ideology is a set of integrated beliefs, theories and doctrines that helps to direct actions of a society. Political ideology is almost intertwined with economic philosophy. For example, the political ideology in USA is grounded in the Constitution, which guarantees the rights of private property and the freedom of choice. This has helped to lay the foundation for US capitalism. A change in this fundamental ideology would alter the economic environment of the USA. The political and economic ideologies of nations are important factors in managing country risks.

Political systems. In the extreme, there are two types of political systems: democracy and totalitarianism. Democracy is a system of government in which the people, either directly or through their elected officials, decide what is to be done. Good example include the USA, Canada, England and Australia. Common features of this system include (1) the right to express opinions freely (2) election of representatives for limited terms of office (3) an independent court system that protects individual property and rights and (4) a relatively nonpolitical bureaucracy and defense infrastructure that ensure the continued operation of the system. On the other hand, totalitarianism is a system of government in which one individual or political party maintains complete control and either refuses to recognise other parties or suppresses them. There are a number of types of totalitarianism that currently exist. The best known is communism in which the government owns all property and makes all decisions regarding production and distribution of goods and services. Two of the best examples are China and Cuba. Another form is theocratic totalitarianism, in which a religious group exercises total power and represses or persecutes non-orthodox factions. Iran and some of the sheikdoms of the Middle East are good examples. A third form is secular totalitarianism, in which the military controls the government and makes decisions, which it deems to be in the best interests of the country. An example is Iraq. From the above, we can see that political systems typically create the infrastructure within the economic system functions.

Economic systems. There are three broad types of economic system. In a market economy, the production of goods and services is not planned but is determined by supply and demand. Prices rise and fall in tandem to demand and supply situations. Private ownership is predominant. Any restriction in-terms of supply can be in the hands of a single or a few firms. In this way, it can be detrimental to consumers. Governments are concerned about monopolies and some countries have laws to prevent restrictive business practices (eg the anti-trust laws in USA). As for the command economy, the government determines the production of goods and prices. It is based on the collectivism ideology where the government for the good of society does allocation of the resources.(Brewer. 1993:24) Usually businesses are state-owned and the government makes investment for the good of the nation rather than that of the individual. Communist states operate with such ideology. Lastly, in mixed economy, certain sectors of the economy are left in private hands while others are operated by state-owned agencies. Mixed economies are relatively common as governments continued to manage key industries that are deemed to be vital to national interests.

Legal systems. The other important element for businesses to consider in managing country risks is legal system of the related country. This is crucial because the legal system of a country reflects the system of rules and laws that regulate behavior, along the processes by which the laws of a country are enforced. A country’s law regulate business practice, define the manner in which business transactions are executed and set down rights and obligations of those involved in business dealings. This has important implications for businesses because in today’s’ competitive environment, intellectual property are a major portion of a company’s competitive advantage. For example, Microsoft has