Globalization connects different world economies and paved the way for international businesses to flourish across boundaries. Coupled with digitalization, it has grown manifold in the past few decades worldwide. It refers to all the cross border transactions of goods, capital, technology, managerial knowledge, and services that take place between two or more countries. The companies that carry out such cross border businesses are called multinational companies.
Most of the social and economic changes that are happening now are only due to globalization. Liberalization agreements among many countries characterize International Business. MNCs are tapping the valuable resources of host countries that lack equipment, workforce, and experience and create jobs and revenue.
By doing so, it receives tax breaks, explores new markets, and increases revenue across borders. However, all these activities of making the world smaller is not without significant factors affecting the international business that include:
Six factors that affect international business
1. Legal liabilities
Cross-country businesses have to deal with the legal framework of two or more countries. They may differ in terms of age, disability discrimination, wage rates, employment, environment, and others. Hence, it affects the working of the MNCs to abide by all the rules of all the countries. In addition, many international lending agencies could affect legal culture and working policies.
2. Political factors
The different political considerations of the countries involved in the global business either facilitate or hinder the business. The trade agreements entered between the governments of countries are the ones that are the most affected by political stability, foreign trade regulations, change of actions of the new governments, and many more.
In addition, doing businesses with countries that lack political stability will directly influence the operations of the MNCs.
3. Technological factors
Technology factors are what increases the economic growth and the social change to happen. Hence, they have both positive and negative impacts on the countries due to cross border businesses. In addition, it could threaten the existence of the local businesses to the level of extinction or increase their level to global standards.
4. Economic factors
Many economic factors that directly affect the international business includes among others:
- Fiscal policies
- Inflation rates
- Interest rates
- Income distribution
- Employment level
- Allocation of government budget
- The purchasing power of the customers
- Demand for various products
- Value of the country's currency
5. Social factors
The social environment and culture, like the peoples' customs, lifestyles have a direct impact on international business. The social factors, like education, awareness, status, and trends of the people in society, determine the consumers' behavior for purchasing goods and services.
6. Environmental factors
The external environmental factors have become significant issues for global business in the last few years due to an increase in environmental awareness. The factors like climate change, weather, temperature affects the demand pattern of many goods and services.
More demand moving towards environmentally friendly products and services of different levels in countries is also an essential factor. Many more factors that are significant affect international business, but it is only on the rise every year against all the odds.