GLOBAL BUSINESS ENVIRONMENT-

UNIT-I
 International business environment- An overview
 Features of International business
 Factors encouraging International business
 Difference between Domestic and International business
 Scope of International business in India
 Drivers of Globalization
 Advantages and Disadvantages
 Environmental context of international business: Framework for analyzing
Domestic, foreign and global environment

INTERNATIONAL BUSINESS: CONCEPT

Exchange of goods and services across the national boundary of a country is called International
business.

• It involves all commercial transactions between two or more countries

• Involves mode of business that differ from those of domestic level

• Causes the flow of ideas, services, and capital across the world

• Offers consumers new choices Permits the acquisition of a wider variety of products

• Facilitates the mobility of labor, capital, and technology Provides challenging

employment opportunities

• Re-allocates resources, makes preferential choices, and shifts activities to a global level

According to Cambridge dictionary: “International business is the activity of trading goods and
services between countries”. It is the cross border transaction between individuals, business or
government entities for anything such as physical products, services, technology, knowledge etc.

Example 1: The tea we drink is prepared from the tea leaves in Sri Lanka, the perfume we use
might have been produced in France. The electronic appliances we use are of Japanese
technology. We get all these even without visiting or knowing the country of the company where
they are produced is just because of trade across the boundaries of nations.

Example 2: Unilever established its subsidiary company in India, i.e., Hindustan Lever Limited
(HLL). It produces its products in India and markets them in the nearby neighbouring countries
like Bangladesh, Sri Lanka, and Nepal, etc. Number of United States based companies have
established their plant in China, South Korea, Bangkok etc. thus serving the domestic and
international requirements.

Thus, IB is the process of focusing on the resources of the globe and objectives of the
organisation on global business opportunities and threats in order to produce, buy, sell or
exchange goods and services world-wide.

No country whether developed or developing, produces all commodities to meet its requirement.
It needs to import items that are not produced domestically. At the same time, it tries to export all
items that are produced over and above its domestic requirement.

FEATURES OF INTERNATIONAL BUSINESS

International Business are those activities that involve the transfer of resources, goods, services,
knowledge, skills or information across international boundaries. The main features of
International Business are as follows:

1. Flow of Capital across Countries: International Business is shaped by the flow of

capital across borders rather than by the flow of goods and services. The trends in the
international money market and capital market construct the financial statement of the
country like balance of payment and contribute in shaping the fiscal and monetary
policies of the government. The government, in turn, modifies its policies which in turn
determine the flow of capital across the countries.

2. Accurate and Timely Information Required: Huge investment is done while entering
into an international market, even lot many surveys and researches are done which
involve time and money both. Therefore, international business needs accurate and timely
information in order to make effective, appropriate and quick decisions. Example: Europe
is considered the most opportunistic leather market and based on this information BATA
could enter into various European Markets, India was no first for IT experts.

3. Market Expansion: The goal or objective of international business is market expansion

rather than profit maximisation. Deeper penetration in different markets is the major
objective of international business. Efforts should be made for having foothold in the
market so that the process of expansion becomes easy.

4. Size of International Business: Availability of capital should not be the limitation for
international business as it will lead to compromises. The size of international business
should be large, so as to make a deeper presence in the foreign or international market.
 Larger the size of business of a multinational company, deeper is its impact in
International Market, as its operations are expanded all over the globe.

5. Wider Scope: The whole world is to be considered as market for business. Boundaries of
nations are not the limitations. International Business has a wider scope as compared to
the international trade or International Marketing. Infact, International Business includes
International Marketing, International Investment, Technology Exchange, Management
of Foreign Exchange, International Finance, Management of International Cultural
Exchange, Management of International Human Resource, International Marketing,
Production and Logistics Management etc. Hence, its scope is wide and covers all aspects
of the system.

6. More Potential than Domestic Markets: International markets possess more potential
as compared to the domestic market. This is due to the fact that International Business
has its presence across the globe which widens it horizons, scope, customer base etc.
Example: IBM’s sale is more in Foreign Countries than in U.S.A., high quality fruits like
apple and mangoes are exported from India as Indian market has less potential with
respect to high price goods.

7. Market Segmentation: A firm working at International level should always do market

segmentation before entering in any country. It may be geographical market
segmentation. International Business has to segment its market in order to carve its
presence in any 4 International Business prospective market. Market segmentation refers
to the process of dividing the market into smaller segments based on various factors like,
geographic factors, demographic factors, social factors, cultural factors etc. Generally
International Business segments its market on geographic factors.

Example: Hilton Hotels customize rooms and lobbies according to their locations.
Northeastern hotels are more Cosmopolitan and South western hotels are more rustic.
Nescafe coffee has many flavors depending upon taste and liking of the people of
different countries.

8. Inter-Country Comparison: International Business studies the business opportunities,

threats, consumer tastes, preferences, behaviour cultures of societies, human resource,
technological advancements and management styles of various countries. This helps in
making a comparative study between various components of two countries which leads to
an assessment of inter-country similarities and differences. The inter-country
comparisons also help in analyzing the market potentials of various countries.
FACTORS ENCOURAGING INTERNATIONAL BUSINESS

 To increase sales and acquire scarce  To increase market size.

resources.  To increase profit.
 To diversify sources of sales and  To reduce cost of transportation.
supply.
 Encourage cultural transformation.
 Growth opportunities in other
countries. Potentially untapped
markets.
 Limited Domestic Market

DIFFERENCE BETWEEN DOMESTIC BUSINESS AND INTERNATIONAL BUSINESS

BASIS DOMESTIC INTERNATIONAL

Meaning Domestic company formulates IB enters foreign market by
strategy, product design etc. establishing foreign subsidiary.
towards the national markets, They treat the entire world as a
customers and competitors. single market for production,
marketing, investment and
drawing various inputs.
Environment Domestic Environmental Analysis and scanning of
Scanning, i.e., detailed analysis International Business
of domestic business enthronement and its factors.
environment factors.
Tariffs The tariff rates of various The tariff rates of various
countries do not directly and countries has direct impact on
significantly influence the International trade.
domestic business.
Foreign Exchange Rates FER and their fluctuation do not It directly affects the business as
directly affect the domestic the conversion rates are affected
business.
Culture Mostly domestic culture of the Mostly culture of various
country affects the business countries affect the business
operations including product operations including product
design design of International Business.
Scope It involves inter firm transaction, It involves intra firm transaction
i.e., within a firm and firms of between parent and subsidiaries
same industry of a country. in different countries.

SCOPE OF INTERNATIONAL BUSINESS IN INDIA

Major forms of business operations that constitute international business are as follows.
(i) Merchandise exports and imports: Merchandise means goods that are tangible, i.e.,
those that can be seen and touched. When viewed from this perceptive, it is clear that
while merchandise exports means sending tangible goods abroad, merchandise
imports means bringing tangible goods from a foreign country to one’s own country.
Merchandise exports and imports, also known as trade in goods, include only tangible
goods and exclude trade in services.

(ii) Service exports and imports: Service exports and imports involve trade in
intangibles. It is because of the intangible aspect of services that trade in services is
also known as invisible trade. A wide variety of services are traded internationally
and these include: tourism and travel, boarding and lodging (hotel and restaurants),
entertainment and recreation, transportation, professional services (such as training,
recruitment, consultancy and research), communication (postal, telephone, fax,
courier and other audio-visual services), construction and engineering, marketing
(e.g., wholesaling, retailing, advertising, marketing research and warehousing),
educational and financial services (such as banking and insurance). Of these, tourism,
transportation and business services are major constituents of world trade in services.

(iii) Licensing and franchising: Permitting another party in a foreign country to produce
and sell goods under your trademarks, patents or copy rights in lieu of some fee is
another way of entering into international business. It is under the licensing system
that Pepsi and Coca Cola are produced and sold all over the world by local bottlers in
foreign countries. Franchising is similar to licensing, but it is a term used in
connection with the provision of services. McDonalds, for instance, operates fast food
restaurants the world over through its franchising system.

(iv) Foreign investments: Foreign investment is another important form of international

business. Foreign investment involves investments of funds abroad in exchange for
financial return. Foreign investment can be of two types: direct and portfolio
investments. Direct investment takes place when a company directly invests in
properties such as plant and machinery in foreign countries with a view to
undertaking production and marketing of goods and services in those countries.

Direct investment provides the investor a controlling interest in a foreign company,

known as Direct Investment, i.e., FDI. It can be in the form of joint venture on PPP.
A company, if it so desires, can also set up a wholly owned subsidiary abroad by
making 100 per cent investment in foreign ventures, and thus acquiring full control
over subsidiary’s operations in the foreign market.
A portfolio investment on the other hand, is an investment that a company makes into
another company by the way of acquiring shares or providing loans to the latter, and
earns income by way of dividends or interest on loans. Unlike foreign direct
investments, the investor under portfolio investment does not get directly involved
into production and marketing operations. It simply earns an income by investing in
shares, bonds, bills, or notes in a foreign country or providing loans to foreign
business firms.

DRIVERS OF GLOBALIZATION

There are various reasons for a company to go Global. Some are them as follows:

 Declining Trade Barriers: Government imposes trade barriers on

International trade in order to protect domestic business from competition.
Reduction in trade barriers is another significant driver of globalisation. After
Uruguay round of GATT, all its member countries had to decline trade barrier
to promote free flow of goods and services across the countries.

 Declining Investment Barriers: Now-a-days, governments of various

countries are promoting foreign direct investment which will help to increase
the level of production in the country and also to raise the level of
employment in the host country. It will help in improving the living standards
of the people of the country.

 Regional Integration: The regional integration of the countries increases the

size of the market, quality of production, aggregate demand for foreign
production and services, employment. So, ultimately it increases the economic
activity of the region. The significant regional integration includes European
Union, NAFTA, SAARC, ASEAN, APEC etc.

 Advancement in Technology: The rapid development in technology

especially in information technology sector, Telecommunication and
Transportation had fastened the process of globalisation. With the help of
Internet and World Wide Web, you can do business in different countries
without physically going to that country.

 Generation of Increased Profits: The basic objective of any business is to

earn or maximize profits when domestic markets are unable to promise higher
rates of profits. Due to weak economic position of the country or less
 purchasing power of the people, the business houses are not able to meet their
expected demand and profit, therefore, the business firm searches for a foreign
market where it can earn higher rate of profits and hence international
business becomes significant in such a situation.

 Expansion of Market: International business helps in expanding the market

for its product beyond the domestic market. Expansion of market provides
international platform to the products, which in turn enhances the quality,
price and competitiveness of the product in different markets.

 Utilisation of Production Capabilities: Generally, the engineering set up has

high production capacity but if the demand in the country is less than the
produced capacity then the business houses will not be able to reach their
breakeven point. Thus they have to cross national boundaries for utilizing
their produced goods. International business is significant as it expands the
production capacities of the domestic companies beyond the demand for the
products in the domestic market. The production capacities of the countries
are moulded to cater to the needs of its international consumers like Electrical
goods of Japan and China are having wider market in the foreign countries.

 Utilisation of Technologies and Managerial Capabilities: International

business is needed to use the best and the latest technology across nations.
International business firm has an option to maximize its returns using the
appropriate technology and managerial competence of other countries.
Availability of advanced technology and managerial competence in some
countries act as pulling or attracting factors for business firms from home
country.Example: Many countries like USA, India etc. depends on Japan for
advanced technological and managerial expertise.

 Reduction in Transportation cost: International marketing or export of

goods and services face the problem of high transportation costs which
increased their cost of production and consequently reduced the profit margin.
Therefore, to overcome or reduce this problem the foreign companies were
forced to locate their manufacturing facilities in foreign countries for
increasing their profit margins.

 To Avoid Tariffs and Import Duties: Protective policies of the government

also hinder international trade. Before globalisation, the government used to
levy tariff’s or import duties on the goods to protect the domestic companies
from exploitation. But with the advent of globalisation and International
 Business, the business firms try to avoid tariff’s and import duties and prefer
direct investment to go global. Example: Companies like Honda, Toyota,
Sony, Coca-Cola has gone for direct investment in various countries by
opening their branches or entering into joint ventures. By doing so, these firms
go global and also avoid the tariff and import duties.

 To Enjoy Benefits of Quality Human Resource at Less Cost: The need for
International Business also arises from the fact that in developing countries
the cost of labour is comparatively less than in developed countries and hence
to enjoy the benefits of quality human resource at less cost, international
business is carried out. Example: Business process outsourcing and
knowledge process outsourcing are examples of such benefits.

 Availability and Nearness to Raw Materials: If the basic raw material is not
available in the local market then automatically it will make the goods costly
in the hand of consumers. Thus, nearness to raw material is another factor
which gives birth to the need of International Business. The source of highly
qualitative raw material and bulk raw material serves as a major factor for
attracting companies from various foreign countries

ADVATNAGES OF INTERNATIONAL BUSINESS

The competitive advantages of International business are:

 Higher Standard of Living: Based on the comparative cost theory,

International business possesses the advantage of increasing the standard of
living of people. The comparative cost theory indicates that the countries
which have advantage over the availability of various resources are able to
produce the products at low cost and of high quality. With this advantage of
comparative cost, people from various countries can purchase more products
with same amount of money. This enhances their purchasing power and in turn
helps in increasing their standard of living.

 Free Flow of Capital: International business leads to free flow of capital from
one country to another. This helps the investors to get a fair interest rate or
dividend and also helps the global companies to acquire finance at lower cost
of capital. Further, IB enables the flow of capital to needy countries from
surplus countries, which in turn increases global investment.
 Increased Consumer Income: Multinational companies pay higher wages or
they have increased the average wage level of employees. Employment
opportunities are created in the international market due to MNC’s which
increases the purchasing power of consumer because of increase in their
income and it ultimately increases the national income of the country and
boosts its economy. Countries with open economy grow at faster rate than
close economy. Example: Communist Russia.

 Advantages Due to Product Life-cycle: It might be possible that a product

which is in matured phase or declining in one country might be at introductory
phase in another country. So, in that case manufacturer of that product might
take advantage of product life-cycle in another country. Example: Most of the
technological product which are launched in India had passed through
matured/declining phase in USA.

 Advantage Due to Economies of Scale or Comparative Advantage: As per

the comparative advantage theory of trade, a country will produce that product
in which it has comparative advantage due to skilled labour, cheap raw
material, latest technology etc. It will help in gaining advantage due to
Economies of scale when it produces products at large scale. It also creates
division of labour and specialisation. Example: Brazil produces coffee, Kenya
produces tea, Japan is specialized in automobile and electronics.

 Optimum and proper Utilisation of World Resources: International trade

helps in free movement of factors of production. When countries produce
products through comparative advantage, wasteful duplication of resources is
prevented. Resources will move from the countries where they are in excess to
those where they are in short supply.

 Deficiency in Production to Remain Competitive: Companies when works

at International level try to produce product of high quality at cheaper price.
To fight with this competition, domestic company will also produce good
quality product to gain a larger share in the market. Hence, consumer will have
good quality product to consume.

 Free Flow of Technology: International business provides pool of innovations

and opportunities to the developing countries to use the new and latest
technology and be with the advancement of technology. Example: India uses
various imported defence machinery aircrafts and other imported technology.
DISADVATANGES OF INTERNATIONAL BUSINESS

Along with various advantages, international business is also bringing some disadvantages. Few
have been discussed below:

 International Business Kills Domestic Business: If a company is trying to enter into

international market then it certainly means that its cost of entering is less than cost of
same goods produced in the target country. The international companies from the
developed countries utilize the emerging opportunities of the developing countries, use
the advantages of technology and skilled Human Resource and leave behind the
Domestic Companies or Business at their Mercy. The Domestic business houses of the
developing countries fail to compete with the advanced technologies of multinational
companies of the developed countries and ultimately face losses. Example: Dumping of
goods from China, South Korea, and USA has lead to closing down of many small
industries in India.

 High Cost: A firm when wants to enter into foreign market has to curtail certain
increased costs like establishment of facilities abroad, hiring of additional staff,
maintaining quality of the product as per that country’s quality norms, transportation cost
etc.

 Foreign Regulation and Standards: A firm has to work according to the regulation
and standards of that country. Example: Quality standard of product, packaging and
labeling norms, etc. Delays in Payment: International trade may cause delays in payment
which adversely affect the firms cash flow.

 Complex Organisational Structure: International business usually requires changes to

the firms operating structure. Training/retraining of management may be needed to
facilitate restructuring.

 Unemployment and Underemployment: Certain times, the MNC’s produce the goods
in their home countries or in those countries where production is economical and target
the products in the developing countries. This leads to reduction of manufacturing
operations in domestic industries thereby reducing employment opportunities in the
Domestic Market.

 Huge Foreign Indebtness: The developing economies are trapped into the circle of huge
foreign indebtness by the multinationals. The developing economics with less purchasing
power have to establish infrastructural facilities for multinationals to operate which
increase their indebtness for host countries.
 Political Instability: International Business contributes in the development of national
economies. Condition of political unrest or instability has negative impact on
International Trade. Example: Civil wars in Fiji, Malaysia and Sri Lanka, Iran Iraq war
etc. has lead to tremendous changes in government policies which also affect
international trade. Facilitating these companies is solely in the hand of ruling
government. Therefore, their entry and exist not only affect the national economy but
also adversely affect the stability of the government.

 Exchange Instability: Due to different status of balance of payment of different

countries at different time periods, its currency might be unstable in the market. It may
lead to instability in terms of foreign currencies. Example: Zambia, India and Pakistan
had depreciated their currency several times. It discourages International trade.

 Tariff’s, Quotas and Trade Barriers: A country can restrict international trade through
import tariffs, quotas, embargoes and Exchange control. Example: Before 1998, China,
Pakistan and USA imposed tariff, Quotas and barriers on imports from India.

 Drain of Natural Resources: The Multinational firms and Business exploits the natural
resources of the host company to facilitate manufacturing facilities and sell the final
products to other countries. This leads to drain of Natural Resources of the host country.

 Technological Pirating: Imitation of the product and its technology is a great threat to
international trade. Example: Business of pirated CD’s is at boom in India which is
discouraging the business of CD’s.

 Cultural and Social Barriers: Culture of a country is a general concept of values.

Selling of product becomes different when culture of one country differs significantly
from another country.

Example: (1) McDonald has met with protest in Rome due to objection of people to the
smell of Hamburger’s frying and hence they changed the Exhaust system of the
restaurant. Social factors include family, education, religion and customs.
(2) Change in the appearance of Barbie to launch it in INDIA so that Indian children
could connect to it.

ENVIRONMENTAL CONTEXT OF INTERNATIONAL BUSINESS:

FRAMEWORK FOR ANALYSING:DOMESTIC, FOREIGN AND GLOBAL
ENVIRONMENT
Business Environment can be defined as the combination of internal and external factors
that influence a company's operating situation. The business environment can include
factors suchas: clients and suppliers; its competition and owners; improvements in
technology; laws and government activities; and market, social and economic trends.

Business Environment literally means all those aspects that have a bearing on the
business such as its strengths, weaknesses, internal power relationships and orientations
of the organization; government policies and regulations; nature of the economy and
economic conditions: socio-cultural factors: demographic trends; natural factors; and,
global trends and cross-border developments.

Business environment plays a key role in shaping the business decisions and strategies of
a firm. The opportunities and threats for a business come mainly from its external
environment which includes factors like economic, political, technological and social.
Similarly, the internal factors like managerial capabilities, efficiency in resource
utilization etc make an organization strong or weak.

External Environment: The external business environment of a firm can be classified in

to micro and macro environment.

Micro Environment The micro environment or task environment encompasses those

forces in the close surrounding area of an organization that influence it’s functioning.
Even if it is external to an organization, micro factors need not affect all the firms in a
particular industry in an equivalent manner. Some of the micro factors may be unique to a
firm. It embraces the following factors:
1. Suppliers: Suppliers of raw materials, components and semi finished goods are very
prominent for a firm. They operate as an important force within the micro environment of
the firm.
2. Marketing intermediaries: It includes the firms that assist the company in promoting,
selling and distributing its goods to final buyers. They are operating in the micro
environment.
3.Customers: As far as any business firm is concerned, creation and maintenance of
customers are of utmost importance. Triumph of a business principally depends on
realising the needs, desire and tastes of customers.
4.Competitors: Every organization has a competitive environment. Activities of a
business should be adjusted according to the actions and reactions of competitors. An
enterprise will be facing direct and indirect competition from many rivalries. A firm
should monitor the activities of the competitors in its micro environment and should
counteract accordingly.
5. Public: Public refers to any cluster that has actual or potential interest in the business
activities. Such clusters can exert influence on the business. e.g., growth of consumer
groups may affect the working of newly developed businesses.
6.Financiers: The term financiers include commercial banks, money lending institutions,
private persons etc who have lent money for business operations. In addition to the
financing capabilities, their policies and strategies, attitudes, ability to provide non-
financial assistance etc are vital.
7. Regulators: Regulators are units in the task environment that have the authority to
control, regulate or influence an organization's policies and practices. Government
agencies are the main player of this environment.
8. Strategic Partners: They are the organizations and individuals with whom the firm is
in an agreement or understanding for the benefit of the organization. Such strategic
partners may influence the organizations activities in various ways.

Macro Environment A company along with its micro environment situate in a bigger
macro environment. This micro environment provides opportunities and poses threats to a
firm. The macro forces are generally more uncontrollable and the success of a company
depends on its adaptability to the environment. A firm cannot exercise effective control
on the factors of macro environment and only the degree of adaptability it has to that
particular environment can direct it to success.

1.Economic environment: The Economic environment includes broad factors like

structure and nature of the economy, the stage of development of the economy, economic
resources, the level of income of the economy, the distribution of income and assets
among citizens, linkages with global economy, economic policies etc. Important
economic factors are:
a) Degree of economic development- Extent of development of a country’s economy can
exert influence on the business prosperity in many ways. Factors like nature and size
of demand, government policies affecting business etc derive basically from the level
of economic development of a nation. Economies can be classified in to three as low
income, middle income and high income countries, on the basis of the degree of
development. In a developing country, the low income may be the reason for the very
low demand of the product. Such a circumstance may even necessitate the
development of a new low cost product. For instance, Colgate devised a simple, hand
driven, low-cost ($10) washing machine for low income buyers in less developed
countries. On the other hand, businesses will prosper in those economies which are
highly developed, and where investment and income are swiftly rising.

b) Structure of the economy- The structure of the economy encompasses factors such as
contribution of different sectors like primary (agricultural), secondary (industrial) and
tertiary (service) sectors. Large, medium and small sectors, integration of the
domestic economy with the world economy etc are imperative to business because
these factors designate the prospectus for different types of business. The character of
each sector and its various components has bearing on the business. For instance,
even if we are in the first place in the production of several agricultural products, we
cannot collect and process crops efficiently because of the small and scraped nature
of the land possession. Agricultural inputs business may be affected by this.

c) Economic policies- Economic policies like industrial policy, trade policy, foreign
exchange policy, monetary policy, fiscal policy, and foreign investment and
technology policy etc can exert high influence on business operations. While some
enterprises get benefits out of certain government policies,

-Industrial policy- Policies on industries usually define the role and objectives of
different sectors like private and public, large, medium and small etc. Businesses
would be compelled to change.
-Trade policy- their operations in accordance with the new policy regime.
-Fiscal and monitory policies- A preventive import policy of the government may do
benefits to the home industries. Fiscal policy includes the government’s tactics on
public expenditure and revenue. It can restrain or foster business operations.
Similarly, a policy of the Reserve bank to restrain flow of credit can affect the
savings, investments etc.

d) Economic conditions- Economic conditions refer to the state of the economy in a

country or region. Economic conditions change over time. General economic conditions
have an effect on business. Economies pass through periods of boom and recession. A
boom is attributed by high levels of output, employment and rising demand and prices. A
business can reap profits during the periods of boom and the reverse happens during
recession. Thus it can be inferred that all these factors make the economic environment of
a business complex and it has to formulate its own policies for its survival.

2. Political Environment : It primarily comprises of the country’s government’s actions

which may influence the operations of a company or business. These actions can be on
different levels like local, regional, national or international. The decision makers should
observe the movements of the government keenly, so that they can make quick decisions.
Increase or decrease in tax level is one factor in political environment. Such decisions
will directly affect the business. Government interferences like shifts in interest rate can
have an effect on the demand patterns of company. The political environment is one
among the least predictable elements in the business environment. Major political factors
affecting business are:
a) Bureaucracy
b) Employment law
c) Trade control
d) Tariffs
e) Freedom of the press
f) Corruption level
g) Environmental Law
h) Health and safety law
i) Competition regulation
j) Consumer protection and e-commerce
k) Intellectual property law (Copyright, patents)
l) Import restrictions on quality and quantity of product
m) Government involvement in trade unions and agreements
n) Government stability and related changes
o) Tax policy (tax rates and incentives)

3. Technological environment: Along with determining the destiny of an organization,

technology can contribute to the economic and social development of a nation. Factors
like the type of technology in use, the level of technological developments, the speed
with which new technologies are adopted and diffused, the type of technologies that are
appropriate, the technology policy etc has deep implications on the prospects of the
business. Technology can be bifurcated in to the tools-both machines (Hard Technology)
and ways of thinking (Soft Technology) - accessible to crack problems and uphold
progress between societies.
-Innovation-Technological environment of a firm includes the following. It is the
eminent economist, Joseph Schumpeter, who upheld the value of innovation in the
development of s business firm and society. There are three types of innovations as
Radical innovation (fundamental technological innovation that launches a new machinery
like the invention of steam engine or steam boat), incremental innovation (altering an
existing technology system that does not modify functionality but improve performance)
and next generation technology innovation (similar to incremental innovation but
improve performance dramatically).

-Technology leadership and followership- A firm seeking better technologies can either
become a technology leader or follower. Leadership refers to becoming the first in
introducing a particular technology and followership.

-Technology may augment the competitive advantage of a firm in the following ways:
means a firm chooses not to become first on innovations. Technological transformation
may reduce cost and it will boost a firm’s differentiation abilities with other similar
firms. Initiating the technological change may give first mover advantage to a firm.
Technological change will improve the overall industrial structure.

4. Socio-cultural Environment: The social environment of business includes social

factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc.
The social structure and the values that a society cherishes have a considerable influence
on the functioning of business firms. For example, during festive seasons there is an
increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in
literacy rate the consumers are becoming more conscious of the quality of the products.
Due to change in family composition, more nuclear families with single child concepts
have come up. This increases the demand for the different types of household goods. It
may be noted that the consumption patterns, the dressing and living styles of people
belonging to different social structures and culture vary significantly. Social
responsibility of business It signifies that all activities a business does over and above the
statutory requirement comes under corporate social responsibility. It depicts that the
business has some more moral responsibilities towards the society. Archie. B. Caroll
defines Corporate Social responsibility as the entire range of obligations business has to
society. He has derived four models of Corporate Social responsibility as follows:

-Economic Since the firm is primarily an economic entity, its activities should contribute
to the prosperity of the economy.

-Legal A company is legally bound in many aspects and it is ought to obey the law of the
land.
 -Ethical These are certain standards which the society expects the business to do though
they are not demanded by the law. Eg: Avoiding corruption and unfair trade practices.

-Discretionary These are the voluntary contributions of the business to the social
affluence like participation in the community development programmes.

Cultural environment: Culture of a particular region includes activities such as dance,

drama, music and festivals. In its exact sense culture is understood as that composite
whole which includes knowledge, belief, art, morals, law, customs and other capabilities
and habits acquired by individual as a member of a society.

The culture has two main traits:

i) Shared value
ii) Passage of time Culture of a society is shared by its members.

Cultural philosophy is passed from one generation to other generation. It is not confined
to one particular period of time. The interface between business and culture can be
summarized as follows:
a. Culture creates people.
b. Culture decides goods and services to be bought and sold in a particular region.
c. It defines people’s attitude to business and to work.
d. Explains the spirit of collectivism and individualism.
e. Defines whether people are Ambitions or complacent.
f. Education
g. Family
h. Authority
i. Marriage
j. Time Dimension
k. Cultural Resources. All the above said factors influence the business in one or other way.
Hence it is important to understand all these factors for a successful business

5. Demographic environment: It includes:

a. Demographic factors such as size of the population, populations growth rate, age
composition, life expectancy, family size, spatial spatial dispersal, occupational
status, employment pattern etc, affect the demand for goods and services. Markets
with growing population and income are growth markets. But the decline in the
birth rates in countries like the United States have affected the demand for baby
products. Johnson and Jonson have overcome this problem by repositioning their
 products like baby shampoo and baby soap, promoting them also to the adult
segment, particularly to the females.

b. A rapidly increasing population indicates a growing demand for many products.

High population growth rate also indicates an enormous increase in labour supply.
When the Western countries experienced the industrial revolution, they had the
problem of labour supply, for the population growth rate was comparatively low.
Labour shortage and rising wages encouraged the growth of labour-saving
technologies and automation. But most developing countries of today are
experiencing a population explosion and a situation of labour surplus. The
governments of developing countries, therefore, encourage labour intensive
methods of production. Capital intensive methods, automation and even
rationalization are apposed by labour and many sociologists, politicians and
economists in these countries. The population growth rate, thus, is an important
environmental factor which affects business. Cheap labour and a growing market
have encouraged many multinational corporations to invest in developing
countries.

c. The occupational and spatial mobilities of population have implications for

business. If labour is easily mobile between different occupations and regions, its
supply will be relatively smooth, and this will affect the wage rate.

d. If labour is highly heterogeneous in respect of language, caste and religion,

ethnicity, etc., personnel management is likely to become a more complex task.
The heterogeneous population with its varied tastes, preferences, beliefs,
temperaments, etc. gives rise to differing demand patterns and calls for different
marketing strategies.