INTERNATIONAL BUSINESS ENVIRONMENT (INTERNATIONAL

BUSINESS)

International business has grown rapidly in current environment as Markets have

become global for majority of products and services and especially for financial
tools. The technical advancement also made possible companies to trade in different
parts of the world. International business denotes the buying and selling of the goods
and services around the world. World product trade has expanded by more than 6
percent a year since 1950, which is more than 50 percent faster than growth of output
the most dramatic increase in globalization, has occurred in financial markets. In the
global forex markets, billions of dollars are transacted each day, of which more than
90 percent represent financial transactions unrelated to trade or investment. These
business activities may be of government or private enterprises. Since earlier time
when the terms of international business was evolved, many researchers such as
Vernon (1966), Fayerweather (1960), and others, have expressed the significance of
the international business environment in international business studies. Nehrt,
Truitt, and Wright (1970) recommended that international business research is
"concerned with the interrelationship between the operations of the business firm
and international or foreign environments in which the firm operates", and that
"more attention is being devoted to the environment of international business".
Guisinger (2000, 2001) argued that the IBE is the central element that established
IB as a distinct discipline because the IBE is the idiosyncratic feature that
distinguishes IB research from other management areas, and from studies of
management of large-scale enterprises. Boyacigiller and Adler (1997) argued that
"by definition, IB is contextual. It specifically includes the external international
environment in which firms conduct business; that is, the international context in
which firms are embedded. It is precisely the nature of this embeddedness in an
external international environment that has distinguished IB from other areas of
management inquiry".

CONCEPT OF INTERNATIONAL BUSINESS

International business is associated with all business movement that are performed
beyond national borders. Management theorists have formulated numerous theories
to explain international business environment. Some theorists avowed that
international business is defined as an organization that buys and/or sells goods and
services across two or more national boundaries, even if management is located in a
single country. Many scholars stated that international business is equated only with
those big enterprises, which have operating units outside their own country. Other
theorists defined that international business environment is the commercial activities
crossed national borders. It includes the global movement of good, capital, services,
employees and technology; importing and exporting; cross-border transactions in
intellectual property such as patents, trademarks, know-how, copyright materials
through licensing franchising and management contracts. Group of researchers
stated that international business environment is the deal done by individual or
organisation at global level in order to accomplish the objective through export,
import and foreign direct investment. International business, whether in its
conventional form of international trade and finance and contemporary types of
multinational business operations, it is operated at huge scale and has great impact
on political, economic and social field. It is observed that many foreign operations
and the comparative business are used as equal for international business. Overseas
business denotes to domestic operations within an overseas nation. Comparative
business focuses on similarities and differences among countries and business
systems for focuses on similarities and differences among countries. The
fundamental objective of international business to gain profit. When firms do not get
profit in domestic market, they look for foreign market for lucrative business.

Scope of International Business

International business has wide scope as it focuses on the particular issue and
opportunities that appear in business environment as organization operates at global
scale. International business is the generalized field of business, adapted to quite
exceptional features in global environment. The characteristic feature of
international business is that international organizations operate in uncertain
business atmosphere and subject to rapid change as compared to the domestic
environment. Numerous factors and environmental variables that are important in
international business such as foreign legal systems, foreign exchange markets,
cultural differences, and different rates of inflation are either largely irrelevant to
domestic business or are so reduced in range and complexity as to be of greatly
diminished significance. Domestic business is a limited case of international
business. The characteristic feature of international business is that international
firms operate in environments that are highly uncertain and where the rules of the
game are often ambiguous, contradictory, and subject to rapid change, as compared
to the domestic environment.

PROBLEMS OR MAJOR ISSUES IN INTERNATIONAL BUSINESS

Many investigators have found that when firms operated at international scale, they
face numerous challenges and issues. International businesses have to conform to
the local rules and regulation in which they operate. Organizations when expand
their business in other countries, they have foreign languages and difficulty to gather
information about foreign countries. They have to deal in foreign currency. The
exchange rate may be varied. When working in other countries, their culture and
social value must be taken in account. The risk factor is high in overseas business
operations that include political, commercial, and financial. Communication and
control of international business is complicated. It is very difficult to understand the
demand of the international market. One of the major issue international businesses
is trade restrictions. A trade restriction, particularly import controls, is a very
important problem, which an international dealer faces. It is observed that Trade
practices and customs may differ between two countries. Some of the issues in
international business environment include social, ethical, environmental and legal
issues.

BENEFITS OF INTERNATIONAL BUSINESS

Though firms have to undergo numerous problems when expanding their business
in other countries, but the international business brings countries together. It creates
an atmosphere of unity and makes the world as global village. It exchanges the ideas,
information, service, and capital across the country's borders. This has positive
outcomes in terms of best use of human capital that increases employee opportunity.
There is equal growth of wealth, price stability, availabilities of goods and services
to each and every one. It also brings new environment of alliance, development,
stability, affluence, modernization and technology in the world. Foreign markets
create a larger share of the total business of many firms that have wisely cultivated
markets aboard.

The benefits of export are clearly acknowledged. Imports can also be highly useful
to a country because they constitute reserve capacity for the local economy. Without
imports, there is no incentive for domestic firms to moderate their prices. The lack
of imported product alternatives forces consumers to pay more, resulting in inflation
and excessive profits for local firms. This development usually acts as prelude to
workforces demand for higher wages, further exacerbating the problem of inflation.
The prospects of a business depend not only on its resources but also on the
environment. To adapt to the international business environment, the multinational
corporations need to engage in systematic collection of information on all
environmental dimensions and the economic agents in the local markets, processing
this information to enhance environment knowledge, identification of the more
vulnerable internal areas and external opportunities towards a better environmental
fit; and implementation of the "best practices" more adjusted to the identified
environment. In the following sections we will argue that firms' ability to adapt to
the environment is a resource, or a capability, whose foundations lye in the human
resources' stock of knowledge and experiences that seek a better fit to promote better
performance. Hence we argue that it is also a crucial source of competitive advantage
in a competitive game that does not attain a neoclassical long-term equilibrium
To summarize, the globalisation of businesses and markets results in the global
business environment, this is concerned about the context of the international trade
transaction. In international business, there are many issues like language barrier,
economic policies of particular nation, cultural differences and higher complexity,
of risk and uncertainty because organizations is not operating in recognizable
environment but rather with an international environment. In spite of various issues,
International business environment has many positive aspects such as it contributes
new technology, managerial skills, infrastructure development, creating jobs and
bringing in investment capital from other countries by exporting products and
providing better services. Global business demands that companies manage their
worldwide operations efficiently and on the basis of honesty, corporate integrity,
following ethical standards and understanding the sense of responsibility.

INTRODUCTION TO INTERNATIONAL BUSINESS ENVIRONMENT 2

International Business: International Business When business activities are

performed on an international level, these can be termed as international business.
Basic functions, processes and techniques of international business are essentially
the same as those involved in domestic business. What is different is the environment
within which these functions are performed and processes are carried out.
International Business environments are unfamiliar and different from the domestic
environment. These variations may need adaptation for business success.

International Business Environment: International Business Environment In the

context of a business firm, environment can be defined as various external actors
and forces that surround the firm and influence its decisions and operations. The two
major characteristics of the environment as pointed out by this definition are: these
actors and forces are external to the firm these are essentially uncontrollable. The
firm can do little to change them

Micro and Macro Environments: Micro and Macro Environments Micro

environment can be defined as the actors in the firm's immediate environment which
directly influence the firm's decisions and operations. These include: suppliers;
various market intermediaries and service organizations such as middlemen,
transporters, warehouses, advertising and marketing research agencies, business
consulting firms and financial institutions; competitors, customers and general
public. While the customers constitute firm's market, suppliers and market
intermediaries help providing the firm with inputs and assist in production and
marketing processes. Competitors and general public also influence the way a firm
conducts its business.

Micro and Macro Environments: Micro and Macro Environments Macro

environment consists of broader forces which affect the firm as well as other actors
in the firm's micro environment. These include factors such as geographic,
economic, financial, socio-cultural, political, legal, technological and ecological
forces. Firms need to continuously monitor changes in these environmental forces
and devise strategies to cope with them.

DOMESTIC, FOREIGN AND GLOBAL ENVIRONMENT: DOMESTIC,

FOREIGN AND GLOBAL ENVIRONMENT

Domestic, Foreign and Global Environment: Domestic, Foreign and Global

Environment In the figure, innermost circle represents firm's business strategy and
decisions with regard to production, finance, marketing, human resources and
research activities. Since these strategies and decisions are made by the firm, they
are called controllable. Firm can change them but within the constraints of various
environmental factors.

Domestic, Foreign and Global Environment: Domestic, Foreign and Global

Environment The next circle represents domestic environment and it consists of
factors such as competitive structure, economic climate, and political and legal
forces which are essentially uncontrollable by a firm. Besides profound effect on the
firm's domestic business, these factors exert influence on the firm's foreign market
operations. Lack of domestic demand or intense competition in the domestic market,
for instance, have prompted many Indian firms to plunge into international business.
Export promotion measures and incentives in country have been other motivating
factors for the firms to internationalize their business operations. Since these factors
operate at the national level, firms are generally familiar with them and are able to
readily react to them.

Domestic, Foreign and Global Environment: Domestic, Foreign and Global

Environment. The third circle represents foreign environment consisting of factors
like geographic and economic conditions, socio-cultural traits, political and legal
forces, and technological and ecological facets prevalent in a foreign country.
Because of being operative in foreign markets, firms are generally not cognizant of
these factors and their influence on business activities. The firm can neglect them
only at the cost of losing business in the foreign markets. The problem gets more
complicated with increase in number of foreign markets in which a firm operates.
Differences exist not only between domestic and foreign environments, but also
among the environments prevailing in different foreign markets. Because of
environmental differences, business strategies that are successful in one nation might
fail miserably in other countries. Foreign market operations, therefore, require an
increased sensitivity to the environmental differences and adaptation of business
strategies to suit the differing market situations.

Domestic, Foreign and Global Environment: Domestic, Foreign and Global

Environment The upper most circle, viz., circle four, represents the global
environment. Global environment transcends national boundaries and is not
confined in its impact to just one country. Global environment exerts influence over
domestic as well as foreign countries and comprises of forces like world economic
conditions, international financial system, international agreements and treaties, and
regional economic groupings. World-wide economic recession; international
financial liquidity or stability; working of the international organizations such as
World Trade Organization (WTO), International Monetary Fund (IMF), World Bank
and the United Nations Conference on Trade and Development (UNCTAD);
Agreement on Textiles and Clothing (ATC); Generalized System of Preferences
(GSP); International Commodity Agreements; and initiatives taken at regional levels
such as European Union (EU), North American Free Trade Association (NAFTA)
and Association of South East Asian Nations (ASEAN) are some of the examples of
global environmental forces having world-wide or regional influences on business
operations.

Domestic, Foreign and Global Environment: Domestic, Foreign and Global

Environment. Environment plays a vital role in the conduct of business operations.
Especially in the context of international business, environment assumes critical
importance as no two countries have similar environments and demand different
business strategies to cope with differing business conditions. As the environment
affects firms' strategic as well as tactical decisions, it becomes imperative for the
firm to have in-depth knowledge of the domestic, foreign and global environments.

Relevance of International Business Environment: Relevance of International

Business Environment When a firm decides to enter into international business, it
faces two major decision problems: Which markets to select, and How to enter into
those markets. Both these decisions are strategic in nature and are greatly influenced
by the environmental forces. Firms select those countries as their target markets
which have sufficient market potential. Market potential in turn depends upon
geographic, economic and cultural environments prevailing in the foreign countries.
Demand for fans, for instance, will be more in countries which are geographically
located in hot zones and where per capita income is high enough for the people to
afford purchase of fans. Besides climate and sufficient income, electricity should be
available to make the fans workable.

Relevance of International Business Environment: Relevance of International

Business Environment Once the firm identifies countries with market potentials, it
needs to decide as to what mode it should use for entering into those markets. A wide
range of options such as exporting, licensing/franchising, joint venture or setting up
wholly owned subsidiaries abroad are available to firms. Firm's actual choice of
market entry mode is influenced by a variety of environmental factors. Exporting is
desirable when it is economical to produce in the home country and there are no
legal restrictions on import of given product in the foreign markets. In the case of
import bans or excessive costs of transportation, a firm may choose to set up its
manufacturing and marketing subsidiaries abroad. But this is feasible only when
foreign governments are not averse to foreign direct investment, and necessary raw
materials and labor are available locally at competitive prices in the foreign
countries. In countries where first condition is not fulfilled, the firm can go in for
either licensing or joint venture as these entry modes are politically less
objectionable.

Relevance of International Business Environment: Relevance of International

Business Environment Environmental forces play an equally important role in
shaping a firm's functional and tactical decisions. What should be the scale of
production? Should the firm employ labor or capital intensive techniques? How to
finance firm's foreign operations? How much to repatriate? What marketing mix
should the firm use? Should it hire local persons or employ foreign nationals? What
should be their compensation package? Answers to these and other questions require
in-depth analysis of the prevailing environments in foreign countries. Since the
environments differ, firm cannot be much successful by falling back upon its
domestic decisions and practices. Firm needs to screen the foreign country
environments and accordingly decide about the best course of action in each country.

FOREIGN ENVIRONMENT: FOREIGN ENVIRONMENT Foreign environment

consists of geographical, economic, financial, socio-cultural, political, legal and
ecological forces. A firm needs to examine these components of the environment for
each one of the foreign countries in which it operates. All the components-and
elements of the foreign environment might not be relevant to a decision maker. Much
depends on the nature of the firm and its decisions. For a small firm interested in
exporting, analysis of the commercial policy and the economic environment would
be sufficient. But for a multinational corporation interested in setting up a
manufacturing plant in a foreign country, geographic as well as socio-cultural, legal
and political environments would be as important as the economic environment.

Geographic Environment: Geographic Environment Geography is an important

component of the foreign environment and refers to a country's climate, topography,
natural resources and people. Every organization engaged in international business
must have some knowledge of geographic features of the foreign country as these
influence the nature and characteristics of a society. It also affects demand pattern
of the people living in the country. Geography is a major contributory factor to the
development of business systems, trade centers and routes.

Geographic Environment: Geographic Environment Different climatic conditions

(viz., rain, snowfall, wind, temperature, humidity, etc.) give rise to demand for
different types of products. It is largely due to climatic differences that people differ
in their housing, clothing, and food, medical and recreational needs. Many a time
needs are same, and the same products are demanded. But because of the climatic
and/or topographic differences, products need adaptation or modifications to suit
local conditions. Rolls Royce cars from Britain, for instance, required extensive
body work and renovations in Canada because the salted sand, spread over streets to
keep them passable throughout four or five months of virtually continuous snow in
Canada, caused rusting and corrosion in the fenders and door panels; and the oil
system also developed leaks.

Geographic Environment: Geographic Environment Geographic conditions also

affect a firm's plant location decision. A firm prefers to set up its manufacturing plant
in a country which has favorable climatic conditions, possesses suitable topography
(i.e., surface features such as hills, plains, river and sea) and where raw materials,
energy and labor are cheaply and abundantly available. Foreign country's nearness
to other markets and its strategic location on major trade routes are other equally
important considerations.

Geographic Environment: Geographic Environment Firms' distribution and logistics

strategies are directly influenced by geographic conditions in the foreign markets.
Re-order points and safety level stocks are kept generally higher for those countries
or places which are not easily accessible and can be cut off suddenly due to bad
weather.

Geographic Environment: Geographic Environment Location of a country on the

world map is an equally important consideration. It affects its trade prospects with
other countries. Landlocked countries such as Bolivia, Zambia and Zimbabwe, are
not only costly to reach but are also difficult to penetrate as trading with these
countries depend upon their relations with neighboring countries through which
goods have to cross.

Economic & Financial Environment: Economic & Financial Environment Various

dimensions one needs to consider while attempting an economic and financial
analysis include: foreign country's level of economic development, income,
expenditure pattern, infrastructure including financial institutions and system,
inflation, foreign investment in the country, commercial policy, balance of payments
account, accounting systems and practices, and integration of the foreign country's
foreign exchange, money and capital markets with the rest of the world.

Economic Environment: Economic Environment Among all the uncontrollable,

economic environment is perhaps the most important factor. An analysis of
economic environment enables a firm to know how big the market and what its
nature is is. Answers to these questions in turn determine whether a firm should enter
a given foreign market, and if yes, what strategies it should use to successfully run
its business operations.

Economic Environment: Economic Environment Economic Development:

Economic development is directly related to the development of marketing in a
country. Countries characterized by high levels of economic development not only
have high demand for a variety of products, but also have better infrastructure and
more developed marketing systems. Competition is also high in these countries. In
the less developed countries, on the other hand, not only demand is low, but
infrastructure is also poor. It, therefore, becomes quite difficult and more expensive
to do business in such nations.

Economic Environment: Economic Environment Income: Income is an important

indicator of the country's level of development and also its market size. Gross
national product (GNP) and per capita income are among the major measures of
income. While sales of most of the industrial goods and capital equipment generally
co-relate with GNP, demand for consumer products depends on per capita income.
Though per capita income is a useful measure, it is not a full-proof measure of the
country's development and prosperity. What is more relevant is the distribution of
income. While in the developed countries income distribution is relatively more
even, it is highly skewed in the developing countries. Since only a small portion of
the population accounts for 60 to 70 percent of the country's GNP and the rest are
poor in the developing countries, market for high priced product and non-essential
products is limited only to select rich people.
Economic Environment: Economic Environment Besides income, one should
acquire information about the sectoral distribution of the GNP as it is an important
determinant of kinds of goods in demand in a foreign country. If the majority of a
country's GNP comes from agriculture, it implies that the country is agriculture
based and it shall have a good demand for agricultural inputs such as seeds,
fertilizers, pesticides and agricultural machinery and tools. An industrial nation with
relatively higher dependence on manufacturing, on the other hand, shall have a good
market for raw materials, plant and machinery, and also for a variety of consumer
durables and non-durables.

Economic Environment: Economic Environment Expenditure Pattern : Data on

expenditure patterns are useful in judging as to how the money is spent on different
item and which products receive more weightage. Infrastructure : Infrastructure is
another vital dimension of the country's economic environment and is directly
related to the country's economic development. Infrastructure refers to various social
overheads such as transportation, telecommunications, commercial and financial
services like advertising, marketing research, various media, warehousing,
insurance, distribution, credit and banking facilities. Absence of adequate
infrastructure not only hinders country's development but also affects firms' costs
and capacity to reach various market segments. Companies find it difficult to co-
ordinate and control their business in countries with poor communication systems.

Financial Environment: Financial Environment Monetary and Fiscal Policies :

Inflation, interest rate, various kinds of duties and exchange rates are the variables
related to the country's monetary and fiscal policies and have a substantial impact on
the costs and profitability of business operations. These variables also Influence a
firm's decision to move funds from one nation to another.

Financial Environment: Financial Environment Commercial and Foreign Investment

Policies : Each country has its own commercial and foreign investment policies
which must be studied in detail to ascertain country's openness for trade and
investment with other countries. A proper understanding of these policies can be
quite helpful in ascertaining what tariff and non-tariff barriers the particular country
uses to protect its domestic industry from foreign competition. The country may plan
to minimize the incidence of these trade measures.

Financial Environment: Financial Environment Balance of Payments Account : A

country's balance of payments account is another major source of' information about
the country's foreign trade and foreign currency reserves. The current account throws
light on the country's exports and imports as well as its major sources of imports and
destinations of exports. Capital account reveals stocks of foreign investments,
borrowings, lending and foreign exchange reserves. An international firm must be
duly aware of exchange controls prevalent in the foreign countries. Countries
running deficits in their balance of payment accounts generally impose controls on
movement of foreign exchange into and out of their economies. These controls
prompts the multinational corporations to resort to transfer pricing mechanism, i.e.,
over invoicing of imports and under pricing of exports so as to move out more than
permitted funds from such countries.

Socio-cultural Environment: Socio-cultural Environment Business is as much a

socio-cultural phenomenon as it is an economic activity. Per capita income in two
countries may be the same, yet the consumption patterns in these countries may
differ. Socio-cultural forces have considerable impact on products people consume;
designs, colors and symbols they like; dresses they wear and emphasis they place on
religion, work, entertainment, family and other social relations. Socio-cultural
environment influences all aspects of human behavior a nd is pervasive in all facets
of business operations.

Culture: Culture Culture can be defined a s a "sum total of man's knowledge, beliefs,
art, morals, laws, customs and any other capabilities and habits acquired by man as
a member of society.“ It is a distinctive way of life of a group of people, their
complete design of living. Culture thus refers to a man's entire social heritage - a
distinctive life style of a society and its total value system which is intricately related
to the consumption pattern of the people and management philosophies and
practices.

Culture: Culture Within each culture there are many subcultures that can have
business significance. Subcultures are found in all national cultures and failure to
recognize them may create impressions of sameness which in reality may not exist.
A single national and political boundary does not necessarily mean a single cultural
entity. Canada, for instance, is divided between its French and English heritages,
although politically the country is one. Because of such distinctive cultural division,
a successful marketing strategy among the French Canadians might not effectively
work among the English Canadians or vice-versa. Similarly a single personnel policy
may not work with workers employed in two different plants if they belong to
different sub cultural groups and differ in their work habits and underlying
motivations.
Culture: Culture Some of the important elements to understand a country's culture
are: language, aesthetics, education, religions and superstitions, attitudes and values,
material culture, social groups and organizations, and business customs and
practices.

Culture-Language: Culture-Language Language is an important element of culture

and it is through language that most of the communications take place. An
international marketer should have a thorough understanding of the language of the
market - particularly the semantic differentials and idiomatic nuances which are
essential characteristics of all languages of the world. Dictionary translation could
be quite different from the idiomatic interpretation of a language. When literal
translations are made of brand names or advertising messages from one language to
another by people who know the language but not the culture, serious mistakes may
occur. When General Motors of the United States literally translated its marketing
phrase 'Body by Fisher' into Flemish language, it meant 'Corpse by Fisher'.
Similarly, the phrase "Come alive with Pepsi" faced problems when it was translated
into German advertisements as "Come out of grave" or in Chinese as "Pepsi brings
your ancestors back from the grave". When the American car called 'Nova' was
introduced in Puerto Rico, sales were poor until the company realized that the word
Nova was pronounced as 'No va' - which literally meant in Spanish "does not go".
Sales were better when the name was changed to 'Carbie'.

Culture-Aesthetics: Culture-Aesthetics Aesthetics pertain to a culture's sense of

beauty and good taste, and is expressed in arts, drama, music, folklore, dance and
the like. Aesthetics are of special interest to the international business executives for
these govern the norms of beauty in a society and are helpful in correctly interpreting
meanings of various methods of artistic expressions, colors, shapes, forms and
symbols in a particular culture. Colors, for instance, mean different things to
different people. The color of mourning is black in the United States, but it is white
in the Far East. Green is restful color to Americans, but it is disliked by people in
Malaysia where it connotes illness and death. Symbols also need to be interpreted
correctly. Seven, for instance, signifies good luck in the United States but just
opposite in Singapore, Ghana and Kenya. Use of number four should be avoided in
Japan because it is pronounced as 'shi' which in Japanese means death. Sensitivity
to the aesthetics of a society and their symbolic expressions can greatly help in
avoiding socially embarrassing situations and correctly designing the products and
messages.

Culture-Education: Culture-Education Education is generally understood as formal

schooling. However, it is better to adopt a broader perspective and define education
as any process, formal or informal, through which one learns skills, ideas and
attitudes. Education is important as it affects not only the education levels but also
the development of mental faculties and various skills. In general, educated people
have been found to be more sophisticated, discriminating and receptive to new
products and ideas. Availability of educated manpower like skilled labor, technicians
and professionals is also dependent on the country's education level. Media to be
used by a company for promoting its products and services are also dependent on
education level prevailing in the country. The conventional forms of printed
communications, for instance, do not work in countries where literacy rates are low.

Culture-Religions and Superstitions: Culture-Religions and Superstitions Religions

are a major determinant of moral and ethical values and influence people's attitudes,
habits and outlook on life which are reflected in their work habits and consumption
patterns. Dr. Ernest Dichter observed: "In puritanical cultures, it is customary to
think of cleanliness as being next to godliness. But in Catholic and Latin American
countries, to fool too much with one's body to overindulge in bathing or toiletries,
has the opposite meaning. It is that type of behavior which is considered immoral
and improper". There are numerous religions and faiths in the world, with prominent
ones being : Animism, Buddhism, Christianity, Hinduism, Islam and Shinto. Each
one has its own morals and codes of conduct. A working knowledge of the religions
prevalent in the target markets helps in understanding people's work habits,
underlying motivations and consumption behaviors.

Culture-Religions and Superstitions: Culture-Religions and Superstitions Equally

important are the superstitions of the people in a society. People's beliefs in
astrology, hand reading, ghosts, lucky days and places are integral part of certain
cultures. In some countries, single storey houses are preferred because it is
considered bad to have another's foot on ones head. Location of a building and its
architecture in many Asian countries is governed by the principles of 'vastushastra'
and ‘Feng Shui’ rather than purely geographical and economic considerations.

Culture-Attitudes and Values: Culture-Attitudes and Values Besides religions and

superstitions, one must be cognizant of attitudes, values and beliefs prevalent in a
society. These attitudes and values may relate to consumption level, material
possessions, risk taking and change. 'What is important and desirable' differs from
society to society and is largely governed by the attitudes and values existing in a
society. Americans in general are more receptive to change and risk taking, but
people in many societies are averse to change and risk taking. They prefer doing
what is traditional and safe. New products are not accepted unless these have the
approval of local chiefs or religious leaders.
Culture-Technology: Culture-Technology Technology includes the ways and means
applied in making of material goods. It is technical know-how in possession of the
people of a society. Choice of technology has its repercussions on the size of
investment, scale of operations as well as type and number of workers to be
employed. Technology transfer has been a highly controversial issue in the past.
Because of supply of obsolete or inappropriate technology, many developing
countries have laid down stringent rules and regulations concerning technology
imports and payments. Since transfer of new technology is often riddled with
workers' resistance to change and public criticisms, multinational corporations
generally have suitable action plans to counter such opposition.

Culture-Material Culture: Culture-Material Culture According to Ball and

McCulloch, material culture refers to all manmade objects and its study is concerned
with how man makes things and who makes what and why. While the question
'how?’ relates to technology, other questions 'who', 'what' and 'why' are part of
economics. These elements influence the level of demand as well as types and
quality of goods in demand, and consumption pattern in a society. Business
implications of material culture of a society are obviously many. The goods and
services that are acceptable in one market may not be acceptable in another market
because of differences in material cultures of two societies. For example,
sophisticated electronic appliances widely in demand in the technologically and
economically advanced Western countries may not find a market in the less
developed countries of Asia, Africa or Latin America.

Culture-Social Groups and Organizations: Culture-Social Groups and Organizations

A study of social groups and organizations is important as it determines how people
relate to one another and organize their activities. The size and cohesiveness of the
family, role of men and women in society, and positions of different social classes
differ from country to country. Social groups and organizations mould the pattern of
living and interpersonal relationships of people in a society. They influence the
behavioral norms, codes of social conduct, value systems, etc., that may be of
relevance to the international business managers in their decision making.

Culture- Business Customs and Practices: Culture- Business Customs and Practices
A familiarity with business customs and practices prevalent in different countries is
a must to avoid business blunders. An international business manager must have
necessary knowledge about how business is conducted and what importance
business people in a foreign country attach to work, time, formality, change and
achievement. American managers, for instance, are by nature highly work oriented
and attach utmost importance to speed and punctuality in business dealings. They
are, moreover, highly achievement oriented and fond of new things. But people in
other parts of the world do not share these values and beliefs. Japanese, for instance,
are also workaholics but they are very slow in decision making Latin Americans too
do not believe in haste and spend considerable time in socializing and developing
friendships before coming to business transactions. A person dealing with people
from different cultures should be well aware of differences in the number and nature
of stages involved in business negotiations and formalities to be observed in
concluding business contracts. While in countries like the United States it is
necessary to have final agreement in writing, this practice is not much appreciated
in many West Asian countries where oral agreement alone is considered more than
sufficient.

POLITICAL ENVIRONMENT: POLITICAL ENVIRONMENT It is rightly said

that a foreign business firm operates only as a guest and at the convenience of the
host country government. The government reserves the right of allowing a foreign
firm to operate in the country as well as laying down the manner in which a foreign
firm can conduct business. To gain an insight into a foreign country's political
environment, one needs to analyze factors such as current form of government and
political party system, role of government in the economy, political encouragement
to foreign firms, political stability, and political risks to business.

POLITICAL ENVIRONMENT: POLITICAL ENVIRONMENT Form of

Government and Political Party System: Government in a foreign country can be
either parliamentary or absolutist. While the parliamentary type of government is
run by people's representatives selected from time to time, the absolutist government
assumes the form of absolute monarchies or dictatorships, and only a select few
make policies. In the case of parliamentary government, one needs to know whether
it is a single party system or multiparty government system. Single party government
is considered to be more stable than the multiparty government. However, multiparty
system brings in checks and balances to authoritarianism of single party system.

POLITICAL ENVIRONMENT: POLITICAL ENVIRONMENT Political Ideology

and Role of Government: Besides political party system, one must have knowledge
about the political ideology and government attitudes toward foreign business and
investment. In addition to regulatory role, government itself can be directly involved
in business. In such cases, government enterprises emerge as dominant players in
the market and pose tough competition to the foreign firms. Even supplying goods
and services to the agencies is not hassle free. Because of monopsonic power of the
government organizations, it becomes quite arduous to negotiate prices and other
terms with them.

POLITICAL ENVIRONMENT: POLITICAL ENVIRONMENT Political Stability:

Stability of the government and government policies are a major concern for the
international firm. Since business decisions, these days involve huge investments
and are irreversible, what the foreign firms look in for is politically stable countries.
Political instability can result from either change in the type of government, a shift
in political parties that form the government or change in the government policies
without change in the government or shifts in political parties.

POLITICAL ENVIRONMENT: POLITICAL ENVIRONMENT Political Risk:

Political risk which is defined as the vulnerability of a project to the political acts of
a sovereign government is a big threat to foreign business. The political acts leading
to political risks can range from confiscation, expropriation, nationalization,
domestication to restrictions on transfer of finds. Confiscation occurs when a foreign
investment is taken over by a government without any compensation. Expropriation
takes place when the government takes over foreign investment but some
compensation is paid. The compensation may or may not equate with the market
value of a firm. Nationalization affects the entire industry rather than a single
company, and involves transferring ownership of the confiscated or expropriated
business to a national firm or government entity.

POLITICAL ENVIRONMENT: POLITICAL ENVIRONMENT Political Risk:

Domestication is a mild form of intervention and involves transfer of control of
foreign investment to national ownership to bring the firm's activities in line with
national interest. It differs from expropriation in the sense that it is gradual
encroachment of the freedom of operation of a foreign operator. Domestication can
be either firm initiated, government initiated or predetermined. Whereas firm
initiated and predetermined domestication entail low levels of risk, government
initiated domestication is quite risky and is ranked equal with expropriation in risk.

POLITICAL ENVIRONMENT: POLITICAL ENVIRONMENT Political Risk:

Another type of risk relates to a temporary or permanent blocking of finds. Unlike
other kinds of risks, a business firm under blockage of funds owns the funds and
property rights but it cannot remit the funds or earnings back to home country. This
was a common problem faced by Indians during Idi Amin's rule in Uganda. Although
the government did not formally make any announcements regarding takeover of
property, it became almost impossible for the firms to repatriate their earnings in any
form. No doubt black money market operations may exist in any country, it is
difficult for such operations to handle large scale of funds involved.

POLITICAL ENVIRONMENT: POLITICAL ENVIRONMENT Political Risk:

International firms need a proactive approach to deal with political risks. An
effective management of risks calls for recognizing the existence of various kinds of
political risks and their consequences, and developing appropriate plans and policies
to deal with such risks.

LEGAL ENVIRONMENT: LEGAL ENVIRONMENT Every business firm

operates within the jurisdiction of legal system. This is true of domestic as well as
international firms. But the problem for the international firms is that the laws that
they face in their home countries might be different from those encountered in the
host countries. Advertising laws in Germany, for instance, are so strict that is it best
advised for the international marketer to get himself good legal counsel before
framing his advertising strategy. Similarly there exist laws in European countries
preventing promotion of products through price discounting. These laws are based
on the premise that such practices differentiate buyers.

LEGAL ENVIRONMENT: LEGAL ENVIRONMENT Different laws exist in

different countries not only in the area of marketing mix variables but also for other
business decisions like location of plant, level of production, employment of people,
raising money from the market, accounting and taxation, property rights including
immovable property and patent and trade marks, cancellation of agreements.

LEGAL ENVIRONMENT: LEGAL ENVIRONMENT Besides directly influencing

firm's business operations, laws affect the environment within which a firm operates
in the foreign country. Thus while one country may promote competition within its
markets through its legal system, another country might try to protect its industry
and thereby restrain competition. In the United States, for instance, anti-trust
legislation influences all mergers, takeovers, and business practices which are in
restraint of trade. Court's verdicts in this respect are governed by paragraph one of
Sherman Act. Gillette, for example, was prevented from taking over Braun A.G. of
Germany which was an electric razor manufacturer on the grounds that it would
distort competition.

LEGAL ENVIRONMENT: LEGAL ENVIRONMENT A major problem with laws

in different countries is that the legal systems of the world are not harmonized and
are in fact based on contradicting legal philosophies. The legal systems that exist in
different countries of the world are antecedents of one of the two legal philosophies
,viz., common law and code law. Common law finds it roots in Britain and is
practiced today in the United States, United Kingdom and Canada. The basis of
common law is tradition, past practices and past rulings of higher courts who look
upon similar problems within the accepted set of laws. Code law , on the other hand,
is based on Roman law and is an all inclusive system of written rules that encompass
all eventualities.

LEGAL ENVIRONMENT: LEGAL ENVIRONMENT One important business

implication of the two legal philosophies is that the judgements awarded in the case
of a commercial dispute can be radically different. To illustrate, let us take the
interpretation of non-fulfillment of required conditions of a contract under 'act of
god'. What constitutes an 'act of god' in code law is not necessarily the same under
common law. Thus while strike by workers may be looked upon as an 'act of god' in
code law, it will definitely not be a reason for non-fulfillment of the contract under
the common law.

LEGAL ENVIRONMENT: LEGAL ENVIRONMENT In the last few decades,

efforts have been made to evolve international laws International laws deal with
upholding orders. Originally these laws recognized only nations as entities, but today
these laws also incorporate role played by individuals.

LEGAL ENVIRONMENT: LEGAL ENVIRONMENT International laws may be

defined as a set of rules and regulations which the nations consider binding upon
themselves. This definition brings out two important characteristics of international
law. One there is absence of the existence of a comprehensive legal system. There
is truly no comprehensive body of law because as stated earlier international
commercial law is of recent birth. This has had a direct bearing upon the existing
administering authorities. As of today, there are only a few international bodies for
administering justice. These include International Court of Justice founded in 1946
and the World Court at Hague. Second characteristic of the international law relates
to the fact that no nation can be forced into these rules as stated in the phrase
'consider binding upon them'. Since all nations recognize the sovereignty of the legal
systems, international judgements are, therefore, based on the premise of good
humanity and not on the basis of any particular country's legal system.

LEGAL ENVIRONMENT: LEGAL ENVIRONMENT In the absence of laws

having jurisdiction over sovereign countries, a major problem faced by the
international business firms is which country's laws, viz.. host country's or home
country's or third country's laws, shall be binding in the case of a dispute. Firms also
need to be aware of different modes of the settlement of trade disputes and role of
International Chamber of Commerce' Court of Arbitration.

ECOLOGICAL ENVIRONMENT: ECOLOGICAL ENVIRONMENT Ecology

refers to the pattern and balance of relationships between plants, animals, people and
their environment. Earlier there was hardly any concern for the depletion of
resources and pollution of the environment. Smoke stemming from the chimneys
and the dust and grime associated with factories were accepted as a necessary price
to be paid for the development. But in recent years, the magnitude and nature of the
'pollution overload' have assumed such alarming proportions that pressures have
built up all over the world to do something urgently lest the situation gets out of
control.

ECOLOGICAL ENVIRONMENT: ECOLOGICAL ENVIRONMENT In almost all

the countries, there exist today legislations and codes of conduct to preserve the
earth's scarce resources and put a halt to any further deterioration in the environment.
Business operations of the international firms are no exceptions and have been
brought under such regulations. Very recently, the United States government
imposed a ban on exports of marine products from countries including India which
did not have special devices fitted into fishing trawlers to free the tortoises trapped
during fishing expeditions. Similarly, restrictions have been put on garment exports
using cloth processed through the use of AZO dyes. Germany today is perhaps the
country with most stringent environmental laws in the world.

ECOLOGICAL ENVIRONMENT: ECOLOGICAL ENVIRONMENT The concept

of industrial progress and development has also undergone paradigm shifts.
Corporations today are judged in terms of not only financial returns, but also
conservation of environmental resources and reduction in pollution levels. Green
technologies, green products and green companies are highly valued in today's
global market place.

Governments and politics play a large role in international business. In this lesson,
you'll learn about the political environment in international business, some of its key
factors, and its impact. A short quiz follows.
What Is the Political Environment in International Business?
The political environment in international business consists of a set of political
factors and government activities in a foreign market that can either facilitate or
hinder a business' ability to conduct business activities in the foreign market. There
is often a high degree of uncertainty when conducting business in a foreign country,
and this risk is often referred to as political risk or sovereign risk.
Common Political Factors
Let's look at some common political factors that influence the international business
landscape. The type of economic system a country builds is a political choice.
Foreign countries often will have different economic systems from your domestic
market, and adjustments often need to be made to take these differences into account.

For example, a country may operate in a market economy where private individuals
own most of the property and operate most of the businesses. A market economy is
usually the best economic environment for a foreign business because of the
protection of private property and contract rights.

Some countries lean more towards a socialist economy where many industries and
businesses are owned by the state. Operating businesses in this environment will be
more difficult, but products can still be produced and sold as people still pick their
jobs and earn money.

A few countries operate under a communistic economic system where the state
pretty much controls all aspects of the economy. Conducting business in this
environment ranges from difficult to impossible.

Of course, the reality is that all economies are mixed economies that take parts from
two or more of the 'pure' economic systems. For example, you can conduct business
in communist China in Hong Kong and other special areas where a market economy
is allowed to operate.

Businesses also must often contend with different governmental systems. Examples
include democracies, authoritarian governments, and monarchies. Some
governments are easier to work with than others. Democracies, for example, are
answerable to their citizens and the rule of law.

Authoritarian regimes are usually answerable to no one, including the law. It is less
risky to conduct business in democracies and constitutional monarchies, a monarchy
with a constitution that protects the public and subjects the monarch to the rule of
law, than in countries with authoritarian regimes.

The next major factor is trade agreements. Countries often enter into trade
agreements to help facilitate trade between them. If your country has entered into a
trade agreement with another country, conducting business in that country will
usually be easier and less risky because the trade agreement will provide some
predictability and protection. One great advantage, for example, is that your products
will be subjected to fewer trade barriers that serve as obstacles to exporting your
products into the country.

Conducting business oversees can be a complicated legal affair. In this lesson, you'll
learn some of the essential legal characteristics of international business. A short
quiz is provided after the lesson.
The International Legal Environment
Public international law is the system of rules and principles governing the conduct
of and relationships between states and international organizations as well some of
their persons.

Private international law governs relationships between persons and organizations

engaged in international transactions and addresses which laws will apply when the
parties are in a legal dispute.

Foreign law is a law enacted by a foreign country.

Conceptual Framework
If your company engages in any transactions overseas, it will have to familiarize
itself with the general concepts of public and private international law as well as
foreign law, because all can affect the manner in which you can engage in business
abroad. We'll look at the most essential aspects of the international legal system that
are relevant to businesses.

Public International Law: Sources and Relevance to Business

Public international law comes from three primary sources.

Treaties, conventions, protocols, charters of international organizations, and

executive agreements govern relationships between countries and international
organizations. A treaty is an agreement between one or more countries that addresses
specific aspects of international relations between the parties to the treaty. A
convention is also an agreement between countries and is often negotiated through
international organizations such as the UN, the International Monetary Fund (or
IMF), or World Bank on a regional or global basis, such as the entire continent of
Europe. Protocols are agreements that address matters that are less important than
treaty matters but may relate to matters related to treaties. Finally, executive
agreements are simply agreements between the executives of two or more
governments.
Customary international law is basically the customs that have developed between
states in addressing international relationships that have become general practice and
accepted as law.

Certain principles common to major legal systems, such as due process, rules of
evidence, and trial by legal tribunal (such as a court of law), also comprise a source
of international law.

Businesses engaging in international transactions can be affected by public

international laws in several different ways that are described below.

Trade agreements address some aspect of the trade relationship between two or more
countries, including barriers to trade that will usually affect importers and exporters
of goods and services. A traditional barrier to trade is a tariff, which is a special tax
on imported goods. If your product or service is subject to a tariff, it will probably
be more expensive than domestic goods or services. The tariff can be assessed ad
valorem - as a percentage of the value of the imported product - or as a flat
assessment based on the number of units being imported. Non-tariff barriers include
quotas, which restrict the number of imports permitted into a country, and embargoes
that ban imports and exports with a foreign country or certain products. An example
of an embargoed country is Cuba, and an embargoed product is cocaine. Finally,
indirect trade barriers exist, such as local laws, regulations, and customs that may
make it difficult to conduct business in a foreign country.

Concept of International Business Environment:

We need to first understand the meaning of “international business” and

“environment”.

When business operations are carried out in more than one country apart from the
home nation, then it is termed as international business. A business firm is known as
a multinational enterprise (MNE) when it carries out its production or operations in
more than one country. An MNE is also referred as a multinational corporation
(MNC) or transnational corporation (TNC).

Environment refers to sum total of what is around someone which includes living
things and natural forces. It is also referred as “the conditions that affect the behavior
and development of a business enterprise.” When we combine these two words
International Business and Environment, it refers to conditions or surroundings
prevalent in foreign countries that affect the functioning of a business firm and its
activities.

Environmental factors are mostly external to a firm and are largely uncontrollable.
The business environment of a firm comprises of Micro and Macro environment.
Micro environment or task environment or operating environment consists of those
individuals or groups which are very close to business and with which the
organizations comes into frequent and direct contact in its business activities. It
primarily consists of customers, suppliers, marketing intermediaries, competitors,
and public. Macro Environment or remote environment refers to factors which are
external to a business enterprise and are less controllable as compared to factors
under micro environment. These include political, legal, social, cultural,
technological and international environment

The environment of each country varies from the other and if a business firm has to
operate in more than one country, then it should have a thorough understanding of
differences in environmental factors amongst nations. The strategies that work well
in one country might not work in the other country due to differences in cultural,
political, legal and economic factors.

Significance of International Business Environment:

Whenever a business firm decides to conduct its operations internationally, it has to

take two major decisions:

1. The countries or markets suitable to enter and

2. The mode of entry for entering into these markets.

Both these are strategic and important decisions for a firm and require in depth
analysis of environmental conditions and situations of these markets. A firm would
enter into those countries or markets where there is enough market potential and
scope of growth and expansion. Market potential, however, depends upon the
economic and political factors prevailing in those countries. Demand for air
conditioners, for example, would be higher in those countries which are situated near
hot zones and where the purchasing ability of people is high.

Once the firm has identified countries with market potential, it has to decide the
mode of entry. There are various modes of entry such as exporting, franchising,
licensing, joint venture or setting up wholly owned subsidiaries. A business firm
makes this important decision only after analyzing the various environmental
factors. For example, a firm chooses exporting as the mode of entry when the product
can be produced at a lower cost in the home country as compared to the foreign
country and there are not much legal restrictions on the import of the product.
However, if the product involves import bans or high transportation costs, then it
might choose to set up a wholly owned subsidiary abroad provided the same is
acceptable to foreign governments.

Since the environmental factors differ from nation to nation, a business firm cannot
be successful by replicating the domestic decisions and practices in other nations of
the world. A multinational firm needs to continuously monitor the changes in
political, legal, cultural, social and economic environment of foreign countries and
accordingly make strategic decisions in each country.

Analyzing components of International Environment:

International environment comprises of economic, socio-cultural, geographic,

financial, political, legal and technological forces.

It is not necessary that all the components of international environment are relevant
for every business firm operating globally. It depends upon the nature of firm and
its strategies.
For example, a business firm interested in exporting its products to the other nations
needs to know about the economic policies and regulations of the foreign nations.
However, if a business firm is interested in setting up a manufacturing plant in a
foreign nation, then analysis of political, cultural, legal and geographic environment
would be equally important as economic environment.

The various components of international business environment can be explained as

follows:

1. Economic Environment:
Economic environment is the most important component of international
environment. Analysis of economic factors helps a business firm to make the most
significant decision whether to enter into a foreign market or not and to frame the
strategies it should implement to run its business operations successfully.
Economic environment includes three broad aspects:
a) Type of Economic systems of a foreign country which can be capitalism,
socialism or mixed economy

b) Economic conditions of a country comprising of GDP, per capita income,

employment, inflation, infrastructure, population, market, urbanization, foreign
exchange reserves, Balance of Payments etc.
c) Economic Policies comprising of fiscal, monetary, industrial, trade and foreign
investment policies of the country.
Various international organizations carry out research on economic indicators of
individual nations like United Nations, World Bank, World Economic Forum and
Transparency International etc. This helps the business firms to determine the
economic viability of a country before entering into such market for international
business.

2. Socio-cultural Environment:
Socio-cultural factors are another important element of business environment that
has a considerable impact on business operations especially on the international
business as social and cultural factors vary to a great extent from one country to
another. These factors considerably influence various aspects of human behavior
like the products they consume; colors, designs and symbols they like and the
importance they place on religion, work, family etc.
There are various elements of Cultural Environment that managers of international
business must be aware of. These are:
a) Language:
The world has more than 3000 languages which can pose problems for marketers in
designing advertising campaigns and product labels. Therefore, a global marketer
must have in depth understanding of the language of the country where it is going to
operate.

Value Addition 1: Did You Know?

Problems of Language Translation
Whenever a dictionary translation takes place of certain brand names or
advertising messages from one language to another, serious mistakes can
occur.

For example: The advertising message of Pepsi Co. “Come Alive with Pepsi”
had to face serious problems when it got translated into German language
which meant “Come out of Grave”. The same thing in Chinese meant as
“Pepsi brings your ancestors back from the grave.”

As an activity, think and explore some more examples of problems faced by

business firms during language translation of their advertising messages.

b) Religion:
 Religion influences the values and attitudes of individuals and societies. It has a
considerable impact on attitude of people towards wealth, way of dressing,
consumption habits and their way of living. There are various religions in the world,
for example, Buddhism, Hinduism, Christianity, Islam, Judaism etc. Each religion
has its own value system and determines people‟s code of conduct. A thorough
understanding of the religions present in the foreign countries would help the
multinational firm in understanding the people‟s attitude towards various products
and services.

Value Addition 1: Did You Know?

Impact of Religious Beliefs on Business
Specific beliefs pertaining to various religions can impact business activities adversely and can
even lead to prohibition of sale of certain products in a foreign country.

For example:
1. McDonald‟s had to restrict selling beef products in India because it is against the religious
sentiments of Hindus.
2. Israeli airline company prohibited from flying on Saturday, which is the holy day in Judaism.

3. In most of the Muslim countries, Friday is not included in workdays as it is a day of worship.
As an activity, list down two more examples of impact of religious beliefs on business activities.

c) Education:
Education is an important part of culture which leads to development of new skills,
ideas, values and attitudes amongst the members of society. Education is termed as
formal when it is taught in a particular type of environment and can be informal
when the knowledge is shared outside the classroom for developing new ideas. It is
an important factor as it helps in determination of availability of educated manpower
in a country. By analyzing the types of education in a nation, managers of
international business can determine the level of communication skills of its
employees and the extent to which they would require additional training for
performing the job efficiently.

d) Aesthetics:
Aesthetics usually implies to society‟s sense of beauty related to colors, shapes,
sounds, number etc. and is reflected in the form of arts, music, drama and dance.
They basically refer to the peoples‟ attitudes and responses towards particular
product, design, color or label.

It is important for international marketers to be aware of these cultural differences

while creating advertising appeals and messages for their products so as to avoid any
major blunders. For example, colors have different meanings for different people. In
Asia, the luckiest color considered is red; however, it is a color of mourning in South
Africa. Symbols also carry different meanings and are considered as a powerful
communicator. For example, for Japanese and Chinese, symbol 4 signifies death.
Number 7 is considered good luck for people in US whereas it signifies bad luck in
Singapore and Kenya. Sensitivity to the differences in aesthetics amongst nations
can greatly help the international business firm in correctly designing their products
and messages for each country.

e) Values and Attitudes:

Values are a set of beliefs or way of thinking of individuals present in a society.
Values are opinions which are reflected in an individual‟s behavior. Attitude, on the
other hand, implies tendency of an individual to behave in a particular manner
towards an object or event. Values differ between countries and these differences in
values are reflected in different behaviors relating to consumption level and risk
taking. For example, people usually do not prefer change and tend to avoid risk.
However, people in US accept change easily and are more risk taking in nature. It is
important for a business manager to understand the value system of a country where
it is going to operate and ascertain the attitude of people towards work, achievement,
education change, foreign goods, risk etc.

f) Customs and Practices:

A global marketer must be familiar with long established practices and social codes
of conduct present in different countries in order to achieve desired objectives.
Customs and practices are important as they influence the usage of products and
their packaging and labelling. For example, shaking hands or gifting even number
of flowers is not considered good in Russia. Another example is of Americans who
are considered as highly achievement driven and take business decisions with great
speed. On the other hand, people in Japan are quite slow in taking decisions. Hence,
a business firm dealing with people having varying cultures should be aware of these
differences while having business negotiations with them.

g) Social Groups:
Social groups are an important part of every culture and influence various aspects of
individual‟s life. Social groups primarily consist of family and reference groups.
These groups influence the pattern of living of people and their interpersonal
relationships with others in society. Family can be of different types – nuclear
family, single-parent family or extended family. While in US, nuclear family is quite
common; in China and India, joint family system is more prevalent. Therefore, a
manager of international business should conduct a study of social groups which
would help the business firm understand the way people organize their activities.