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.

International BusinessInternalDomestic EnvironmentForeignGlobal

Acc. To Lee The root cause of most International Business problems is the Self Reference Criteriai.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.

PInternational BusinessPolitical -legalculturalTechnologicalEconomic

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.

DemocracyTotalitarianismTwo basic political system

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.Theocratic (Religious leaders)Secular (Military bureaucratic power)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:Systematic (political change)Procedural (Govt. corruptions, labor disputes etc.)Distributive (Fair distribution)Catastrophic (ethnic discord, civil disorder, war)

Expropriation/ Nationalization

International war/ civil strife

Unilateral breach of contract

Destructive Government actions

Restrictions on repatriation of profit

Differing points of view

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.

Damages or destroys the company's local assets

Decision of a government to repudiate the original contract that it had negotiated with the foreign company.

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.

Arbitrarily set limits on the gross amount of profits a foreign company can remit from its local operations.Differing interpretation of labor rights and environmental obligations that create backlash problems in foreign company's home market.

International BusinessAvoid investmentHire consultantsInfluence local politiciansAdapt Host country has no option

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:

Legal systemIslamic LawCommon lawCivil or code lawMarxist 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:Between governmentsBetween a firm and a GovernmentBetween 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.

ConciliationArbitrationLitigation

MNCProtection of IPRSProduct liability and SafetyComputation LawsBribery and corruptionAdvertising and sales promotionContractsShipping of goodsLabor lawsEnvironmental Laws