External factors affecting the growth of an international business
- General economic and industry conditions
. Economic conditions play a vital role in the development of an international business. Any general economic, business or industry conditions that cause potential customers to reduce or delay investments in the industry could have a negative effect on the company’s strength and profitability. The economic scenario is also interlinked with the political situation and the two are inseparable. Economic conditions vary from country to country. It all depends on the various factors. There are numerous factors under economic conditions that can have a negative effect on the companies or country’s strength and profitability. Some of those important sub-factors are the oil prices, inflation, exchange rates of the currency, interest rates of a country, foreign reserves of a country(in terms of crisis), cost of labor, prices of essential commodities, the country’s economy and its stock exchange etc.
All of the factors mentioned above can affect the businesses internationally at large. For example the recent news that made headlines on a popular news channel and as well as in the newspaper was that of obama. He said that “American firms will no longer get any tax benefits if they move their jobs to India”. Among the major American companies that have outsourced jobs in India include General electric, Microsoft, Hewlett-Packard, Motorola, Pepsi, Honeywell and IBM. Now because of this not only these multinational companies will get affected but also the Indian economy may become unstable.
Political situation
Political situation plays an important part when it comes to the development of an international business. The company’s future growth rates and success is in-part dependant on the political scenario of the host country. As is the case with most international operations, the success and profitability of the company’s international operations are subject to numerous political risks and uncertainties. Even the political situation varies from country to country. Different countries have different laws and policies regarding trade and commerce and can also affect the businesses at large. Companies that are more open to international business are more likely to receive foreign direct investment compare to the countries that have closed economy. For example we can take one of the most popular ‘case study’ of how Pepsi entered India. Pepsi had been trying to enter the Indian market for quite a long time but they had no success because during that time India had a closed economy. Later on when India’s economy was going through foreign exchange crisis they decided to liberalize their economy and Pepsi benefited from the economic changes in many ways and started their operations in India. So the governments have to keep in mind the infrastructure provided to the country and whether the economy is stable or not, will there be new policies if there is a change in the government. Here are some of the political factors that can affect the growth of business.
- Government policies
- Government term and change
- Trading policies
- International pressure group
- Wars and conflicts
- Funding, grants and initiatives
Shrinivas, Nath Nidhi,”Basmati is the right choice for Pepsi,” The Economic Times, October 26, 1999.
Socio – cultural
Socio-cultural factors can affect the growth and the development of an international business if not taken into consideration seriously. The socio-cultural factors can be broadly described into three sub factors, ‘culture, religion and language’. For a multinational company to make high profits they need to acclimatize to the host country’s culture, religion and language, if they don’t someday or the other their business will deteriorate. As said by Bate and Snell, “there must be local marketing to appeal to local consumers and also to build relationships and trust”. For instance Mc Donald’s Food Corporation, Mc Donald’s products are package according to the culture of the locales. Like for example, Mc Donald’s’ caters its menu in other countries with the culture of the region. For instance, In India, menus are served only with chicken and fish items, while beef became a no-no item because cows are considered sacred in Hindu culture.
Internal factors affecting growth of an international business.
Internal factors of a business consist of the organizational resources available to accomplish its goals. These are mainly human, technical and physical resources. The main tasks of a management are to acquire these resources and make effective and efficient use of them within an organization.
Physical resources
Today’s international business environment is highly competitive and the MNC’s have to face a lot of competition in order to stay in the market and thus a MNC needs to have sufficient physical resources. The multinational companies that have good physical resources available in their home country have better stakes to do well in foreign countries. For instance you can take an example of Suzuki; Suzuki is a Japanese multinational car company. They have good availability of resources in their own country so when they entered Indian market, they didn’t face any major problems in terms of physical resources.
Human resources
As it is rightly said by Keith H. Hammonds, “In a knowledge economy, companies with the best talent win; and finding, training and developing that talent should be one of the most important tasks in a corporation”. The availability of skilled human resource is must in order to have a sustained growth in the business and now, because of that businesses are hiring employees from the host country and then they are training, nurturing and developing them so that the businesses can have a sustained growth.
Conclusion
As globalization has increased tremendously in today’s business society, it has become even more important for businesses to keep up with the current development. The findings also suggest that the motive for engaging in internationalization is that the domestic market is insufficient due to the size and maturity. For a multinational company to succeed in their overall business mission they need venture in the host’s country’s market very wisely. Getting into the right entry mode is an important decision for the company and it demands a lot of planning. My own views about what should be done in future in order that international business becomes more open to the global countries and its markets is that to take a wide range of internal and external factors into consideration before making the final decision.
References
Websites:
Welcome to McDonald's India. Mc Donald’s corporation. Retrieved February 26, 2009, from http://www.mcdonaldsindia.com/ourfood/nonveg/index.html
Itimes. (26/02/2009). Is Obama good for India. Retrieved Febuary 28,2009, from http://www.itimes.com/public_main_community.php?gid=8799&ref=toi_sg
Fast Company. (19/12/2008). Why we hate H.R?. Retrieved Febuary 27, 2009, from Fast company website.
Books
Bateman, T.S., & Snell, S.A., (2004). Management: The New Competitive Landscape (6th ed). New York, NY: McGraw-Hill Company.
John Sloman. (2004). Economics for business. London: British Library.
Charles Hill. (2008). Global Business Today. McGraw Hill
Shrinivas, Nath Nidhi,”Basmati is the right choice for Pepsi,” The Economic Times, October 26, 1999.
