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International Business Environment - Essay Example

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International Business Environment

Basically globalization and technological revolution create investment opportunities for organizations worldwide. The economic factors can range from big to small, from local to national to international, from current to future, from rising costs of raw materials to the market entry of a new rival, from forthcoming budget to the instability of international exchange rates, from the current availability of investment of funds to the likely future cash flow from a new product. Business must constantly take such factors into account when devising and acting upon its business strategy. It is normal to divide the economic environment in which firm operates into two levels. The micro economic environment that includes all the economic factors those are specific to a particular firm operating in its own particular market whereas the Macroeconomic environment includes the national and international economic situation in which business as a whole operates. Business in general will fare much better if the economy is growing than if it is in recession. In examining the macroeconomic environment, we will also be looking at the policies that governments adopt in their attempt to steer the economy, since these polices, by affecting things such as taxation, interest rates and exchange rates, will have a major impact on firms. Laws and government policies reflect social attitudes; technological factors determine economic ones such as costs and productivity; technological progress often reflects the desire of researchers to meet social needs and so on. Now looking at these factors if any country's business environment is conducive and encouraging then only it attract foreign direct investments. Foreign direct investment (FDI) represents the finance used either to purchase the assets for setting up a new subsidiary abroad (or expanding an existing one), or to require an existing business operation through either mergers or acquisition. Different countries are also competing within to attract more and more FDI inflow. Traditionally, FDI was a phenomenon that primarily concerned highly developed economies. Developed countries still attract a higher share of worldwide FDI than developing countries. In recent years, however, the increase in FDI flows to developing countries turned out to be higher than the increase in FDI flows to developed countries.
Organizations in the international arena typically follow low cost, low risk entry strategies. Apart from low risk organizations always consider the political, legal and economic factors of national environments. Accordingly, the competition for FDI would be based increasingly on cost differences between locations, the quality of infrastructure and business- related services, the ease of doing business, and the availability of skills. Organizations are attracted to FDI when they offered a competitive advantage over locals, a lower cost for labor and/or physical resources, secure access to physical resources, proximity to major markets and increased market share,. Countries attract FDI if they provide certain facilities to organizations. In this regard UNCTAD (2002) developed a 12 ...Show more

Summary

In today's global market place, organizations find it strategically necessary to engage in foreign direct investment in different countries all over world. The international business environment (IBE) is multidimensional - it covers political risks, cultural differences, exchange risks, legal and taxation idiosyncrasies - scholars seeking to understand the cross-border effects have been picking from different disciplines (e.g., marketing, finance, operations, strategy, organizational behavior) the relevant theories and methods…
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