Factors Influencing International Business

and Risk Analysis

Risk Analysis Before entering any new country , most MNCs do a risk

analysis of the concerned country. The risk analysis are on the main risks which the company

can face in the new country. The risks are Political Economic Socio cultural Financial Legal Technological Competitive Infrastructural Labour

1) Economic environment : Before entering any country, the economic study is of vital

importance

A) Size of the market : most companies are looking at India

because of the huge potential. A case in point is HP which is now focusing on India to sell

their range of laptops and printers in India. India’s middle class and upper class population is more

then the population of Europe.

B) Gross Domestic Product (GDP) : If a constant good rate is maintained , MNCs

would definitely look at such countries. India is maintaining around 7-8% growth rate. In the 1990’s

it was Malaysia and Indonesia.

1) Economic environment :

C) Purchasing Power: Higher PP leads to a highly potential market.

D) Banking : is the only channel through which

remittances take place and hence is a major infrastructure for IB.

Europe and American and the Far east economies have a highly effective banking system.

On the other hand, Africa and CIS are not able to provide good banking services to the International business community.

1) Economic environment :

E) Foreign exchange : countries with sufficient foreign

exchange reserves, a liberal policy on repatriation and which have demand for the products and services are an ideal destination for any company to do IB

1) Economic environment :

F) Income levels: Economies are classified into low and high income economies.

Industrialised nations are high income economies and enjoy a high per capita income.

Companies marketing premium quality or high technology products have an easy entry into such advanced economies with the proper strategy e.g IPOD and Playstations.

Similarly developing countries which are low income economies are price sensitive.

Accordingly foreign companies will think of cheaper or middle level products for these economies.

2) Social Environment:

1) national taste: In Thailand , people prefer black shampoo.

Nestle brews different varieties of instant coffee as people in different countries have different taste.

Green is a favourite colour in Middle east countries. 2) Language 3) demographic profile:

A number of demographic factors such as age, sex ratio, family size and occupation influence the business of many companies.

Different companies concentrate on different segments. e.g Barbie generates huge revenues through the children’s segment of affluent countries. Also brands like Osh Kosh B’Gosh and Jini and Joni can do well in India considering the huge children population.

2) Social Environment:

4) Literacy rate: Countries with a high literacy rate experience a better standard of living .

Here the need is for standardised goods, supported by technical services.

For a country with an educated population , the amount of training required for the staff will be far less than in the case of a country which has a low literacy rate.

This is an important parameter as it influences the costs incurred.

2) Social Environment:

5) Female workforce: With economic independency in countries like

China, India , women no longer depend on men to make decisions about what to buy.

As they have the required purchasing ability, they make decisions on their own.

In India , china , Thailand and Russia, there is a huge demand for categories like Jewellery, Cosmetics, vehicles, ready to eat foods, primarily because of the working women.

6) Double Income families (from to nuclear families):_ As the household income increase the demand for the number of products, increases proportionately.

Political Environment :

Host country political environment : The political parities in each country

have different ideologies. It is imperative to know these ideologies before

entering any country. Both Coke and IBM had to leave India , when in

1977 , Janata party came to power in India.

Global Political environment : formation of strategic alliances like EU

helps companies in that region to enter any country in that alliance as it benefits them more than companies form non EU.

Legal Environment : This relates to the laws and

regulations governing the conduct of business activities in a country .

Before entering any country , firms avail of the services of local legal firms to understand business interpretations pertaining to labour legislation, taxes, environment, pollution etc.

Infrastructural Environment : This relates to power

scenario, roads, railways , airports , the connectivity across the country, communication facilities.

This a major area of concern for India . Some foreign companies have still not

come to India for this reason.

Labour Environment This relates to number of white and

blue collar workers, their attitude towards work, their militant behaviour (if present it has a negative impact), their skill sets in various fields etc.

Foreign companies enter West Bengal and Kerala with high degree of caution because of militant labour.