Understanding the International Business Environment
The expansion and growth of any business organization is possible when it expands across national boundaries. International business is essential, requiring a thorough understanding and study of the international business environment to thrive in this crowded and competitive landscape. The following are the key areas of the international business study.
Competitive Landscape
International businesses must recognise the investment needed to survive in a competitive environment. If the competition is more intense, then a greater investment is necessary to remain competitive in the market. In a less competitive market, moderate investment is needed to create more opportunities for becoming a market leader. Therefore, the level of competition influences the amount of investment needed to establish business operations, including manufacturing setup and marketing activities.
Example
Xiaomi had faced tough competition when it entered the Indian market. The most significant competitors included IT giants Samsung and Apple, as well as local brands like Micromax and Lava. However, the implementation of Xiaomi’s best strategies, including competitive pricing and an effective online distribution approach, helped establish Xiaomi as one of the leading brands in the Indian market.
Profitability potential
The cost and profit margin, along with future scope, determine the profitability potential of any business. Some products have more scope for growth but a lower profit margin due to price sensitivity and higher operating costs. A study of profit margin and scope is an important factor for any business growth.
Another part of the profitability potential is the cost structure employed for the product or service. Manufacturing, shipping, marketing, distribution, and supply chain costs contribute significantly to the profitability.
Example
Tesla, the electric vehicle manufacturer, found that Europe is the best market for generating more profit. The reasons for this are the increasing fuel prices, greater environmental awareness, and the strong EV infrastructure that has been established. These three factors justify the profitability potential specifically for electric vehicles. Tesla is the leader in manufacturing electric vehicles, making it capable of generating more profit in the European market.
Market Entry Barriers
Entry barriers prevent new players or competitors in the market. Entry barriers include government rules and regulations, high capital investment, complicated licensing requirements, heavy import duties, and customer brand loyalty towards existing brands.
Example
The USA‘s FDA approval is very strict, which avoids or makes it more difficult to enter any foreign business in the US market.
Technological Advancement
Advanced technology in the country enables it to run many businesses excellently. Advanced technology includes an advanced and improved production facility or manufacturing setup. Technologically advanced indicates automation, better communication, and logistics. Companies such as Apple and Google, with their advanced manufacturing technologies, can expand their business in countries like South Korea and Japan.
Examples
1. Automobile companies such as Toyota use robotic arms for various manufacturing operations.
2. Amazon uses AI in providing various services such as personalised advertising, storing customers’ data securely, and cloud computing, enabling all of these services with excellence.
3. A mobile phone without touchscreen technology is not possible to sell in today’s business environment.
4. Manufacturing and production units must use robotics and artificial intelligence to survive and compete in today’s business environment or market.
Consumer Behaviour and Trends
Consumers in all the countries have different tastes, preferences, and desires. The diversity of consumers causes trends to vary between countries. Consumers in one country do not necessarily consume the same products in another country.
Many decades ago, the businesses were running without thinking or considering the consumer. Without considering the consumer, the companies were manufacturing the products, and all these products sold out easily without effective marketing management practices. It was possible because the market had few or no competitors, and there was more certainty. But in today’s crowded market, it is not possible to even think of any business without consumers.
Hence, consumer behaviour plays an important role in operating businesses across the globe. Trends influence consumer behaviour and consumption patterns, and consumer behaviour can also shape trends. Consumers constantly try to follow the trend going on in the market.
Businesses can create consumer-friendly products that sell easily on the market by studying consumer behaviour and trends. Therefore, the company can successfully implement its marketing activities.
Example
1. McDonald’s provides McAloo Tikki specifically in India and Teriyaki Burgers in countries like Japan based on the consumers’ demand or tastes.
2. Coca-Cola is offering the smaller bottle-size packaging to provide affordable products.
ions
Government Support and Trade Agreement
Government policies and trade agreements can provide a favorable environment for business. At times, government policies may disadvantage certain businesses. Any country’s applied tariffs or customs duties determine the price of products sold in that country. Removing tariffs makes it easier to sell the product at an affordable price. Increased duty increases the product prices, which reduces the demand.
FDI (foreign direct investment) allows businesses to fully establish their operations in the host country. The government may allow from 50 per cent to 100 per cent FDI to establish a foreign business organization.
Examples
1. A Free Trade Agreement (FTA) is established through a trade bloc formed by two or more countries to facilitate duty-free trade. Such an agreement allows for trade in those countries, free from customs duties.
BRICS, the EU, and ASEAN are the trade blocs or intergovernmental free trade agreements for various businesses to trade without duty.
2. The Make in India policy of the Indian Government attracts businesses across the globe to set up their plant in India. This policy offers incentives in tax and other rules and regulations.
Distribution and Supply Chain Access
The manufacturer transfers goods to the market, where customers purchase them. In the international market, it is essential to use an effective distribution supply chain that ensures the product is available at a lower cost. Transportation cost also influences the product’s profitability or profit margin.
To achieve excellence in the execution of business in the international market, it is essential to study the distribution supply chain access across the globe. Effective use of distribution supply chain access across national boundaries can positively influence cost and profitability.
Example
1. Apple relies on countries like China, Japan, and Korea for components and sells its products all over the world. Access to the distribution supply chain allows Apple to effectively manage its distribution processes.
2. Amazon provides fulfilment centres that ensure the availability of products in all locations and countries.
3. Shipping company Maersk ships goods across the globe through its Singapore port, Dubai port, etc.
4. Coca-Cola and Unilever companies partner with local distributors to make their products in all
the markets of the country