The environment of international business is

regarded as the sum total of all the external

forces working upon the firm as it goes
about its affairs in foreign and domestic
markets.

Domestic
Environment

Internal

International
Business

Foreign

Global

Acc. To Lee The root cause of most International

Business problems is the Self Reference
Criteria
i.e. the unconscious reference to ones own cultural
values, experiences and knowledge as the basis
for decisions.
For e.g. P&G stormed into Japanese market with
American Product, American Managers, Sales
Strategies and sales methods. This was disastrous.
Later adopted Japanese culture and Japan became
second largest foreign market.

Political
-legal
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International
Business
P

Technological

E
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It refers to the influence of system of

government and judiciary in a nation on
international business.
The type & structure of Government
prevailing in a country decides, promotes,
fosters, encourages, shelters, directs &
controls the business of any country.

Two basic political system

Democracy

Totalitarianism

Democracy: Supreme power is vested in

people.
Totalitarianism: also called
authoritarianism. Individual freedom is
completely subordinated to the power of
authority & concentrated in hands of 1
person or in small group, which is not
constitutionally accountable to the people.
a) Theocratic (Religious leaders)
b) Secular (Military bureaucratic power)
c) Tribal (particular tribe monopolies power)

The risk that political decisions or events in

a country negatively affect the profitability
or sustainability of an investment.
Types of political risk:
1. Systematic (political change)
2. Procedural (Govt. corruptions, labor
disputes etc.)
3. Distributive (Fair distribution)
4. Catastrophic (ethnic discord, civil disorder,
war)

1. Expropriation/
Nationalization

2. International war/
civil strife
3. Unilateral breach of
contract
4. Destructive
Government
actions

5. Restrictions on
repatriation of
profit

1. A govt. or political faction unilaterally takes

ownership of the companys local assets.
Compensation to the company, if at all
forthcoming is generally a trivial.
2. Damages or destroys the company's local assets
3. Decision of a government to repudiate the original
contract that it had negotiated with the foreign
company.
4. Actions such as the unilateral imposition of
nontariff barriers in the form of greater local
content requirement, which interferes with the
transfer of goods between supply links or
distribution of goods to local consumers.
5. Arbitrarily set limits on the gross amount of profits
a foreign company can remit from its local
operations.
6. Differing interpretation of labor rights and
environmental obligations that create backlash
problems in foreign company's home market.

Adapt

Avoid investment

International
Business

Host country has

no option

Hire consultants

Influence local
politicians

Legal system refers to the rules and laws

that regulate behavior of individuals and
organizations.
A countrys laws regulate business practice,
define the manner in which business
transactions are to be carried out and set
down the rights and obligations of those
involved in business deals.
The legal system in a country is also
influenced by its political system.

There are 4 basic systems prevailing around

the world:
Common law

Islamic Law

Legal system

Civil or code law

Marxist law

Islamic law: interpretation of the Quran and

practiced in countries where are in majority,
Unique aspect is prohibition of paying or
receiving interest, investments in alcohol,
gambling, and casinos are prohibited.
Socialist Law: Soviet Union- China, Vitenam,
N.Korea and Cuba, State ownership.
Civil Law: Set of laws, roman law, code law.
Common Law: English Law,

3 types of disputes:
1. Between governments
2. Between a firm and a Government
3. Between two firms.
Disputes between governments are resolved
through the intervention of the World Court at
the Hague and the International Court of Justice,
the principle judicial organ of the UN.
Disputes of the other two situations must be
handled in the courts of the country of one of the
parties involved or through arbitration.

Litigation

Arbitration

Conciliation

Advertising and sales

promotion

Protection of IPRS

Product liability and

Safety

Computation Laws

M
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Bribery and
corruption

Contracts

Shipping of goods

Labor laws

Environmental Laws