The purpose of international business is the exchange of goods and services among individuals and businesses in multiple countries. (BusinessDictionary, 2018) In this report, I will be discussing a variety of critical factors such as political, economic, social and technological impacts which can affect a company’s investment within countries.An important factor that companies should be aware of is different political environments in different countries. Different political environments can alter if there is a change in political factors such as tariffs and government instability within a country. An example of a country that has various political environments is the United States, due to the Democratic and Republican parties within the country. States are constantly changing between these two parties through a presidential election every four years which shows political instability within the country.
This was confirmed through the most recent presidential election which has caused the U.S. to go down the global peace ranking. (The Telegraph, 2017)This is a significant consideration for an international company as depending on where they are going to exchange goods in the U.S.; they will have to consider the party of the state as the Democratic and Republican have different stances on different factors.
For example, the Democratic party encourage government regulations so consumers can be protected while the Republican party believe that government regulations hinder the job growth and the free market capitalism within the country. (Diffen, 2017) Also, due to the U.S constructing a regulatory change every four years, an international company has to consider whether the state they are providing goods and services is going to affiliate with the same government party over a long period. If not, it may be ideal for a company to pick a more politically stable country such as New Zealand which is considered the most politically stable nation. (the global economy, 2015) This will allow better and cheaper imports and exports to happen between the company and New Zealand as a more politically stable environment will allow better negotiations to occur.Another political factor that companies need to be aware of is international tariffs. Different countries input different types of taxes such as Ad Valorem tariffs or specific tariffs on certain imports, as well as a distinct rate of tariff that varies depending on the import. An example of a country would be the UK.
The UK is currently under the European Union which means that European nation import to the UK with no tariff. However, Non-European nations have to pay an ad valorem tariff on the goods, which will vary depending on the import. For example, beef has an ad valorem tariff of 12.8%, plus a fixed amount per tonne, depending on the cut.
The European Union does have a quota that allows individual countries from around the world to imports tonnes of beef to the EU market at a reduced or zeroed tariff. However, this is further complicated by Brexit as with the UK preparing to leave the European Union; it will lead to the UK having negotiations with those countries, leading to potentially a much smaller amount of imported beef in the EU market. (What might Brexit mean for UK trade in beef and lamb products, 2016). International companies also have to consider Brexit as in the future, possible negotiations could lead to a higher costs of imports to the UK through tariffs on various products such as clothes. Companies also need to be aware of legal factors within certain countries such as the consumer law, the health and safety law and many more. Different countries have different restrictions on these types of laws. An example of a law that a company would need to be wary of is the employment law. For example, if an American company was to place themselves in the UK, pre-employment screenings of staff have more backgrounds regulation in the UK compared to the U.
S. The UK allows checks only when its relevant to the job performed whilst the U.S does not have any hurdles towards doing background checks. This affects a company as with less background check in the UK, it can lead to situations such as people working despite not having a work permit. This can then lead to further punishments not only for that individual but for the company as well which can also result in bad publicity. This then effects the company as it will result in a smaller amount of people and businesses wanting to invest into the company.An economic factor that a business should consider when doing business in another country is the gross domestic product of specific nations.
The gross domestic product allows a company to see how the economy of a particular nation is performing through its production value while it also allows a business to see the growth rate of a specific country’s economy. The gross domestic product is essential as it affects many factors within a population such as personal finances, investments and job growth within a nation. (the balance, 2017) That, therefore, means that the countries with the highest GDP such as China and the U.S will have the best personal finances between the people ensuring a comfortable living, the best investments and the best job growth globally. This is good for an international business as if they set up a company in one of these countries, their business will appeal to a high number of customers who can pay for their goods and services. As shown in the most recent GPD table, many African nations possess a low GDP which indicates that the people within the country have a low standard of income and living.
(Central Intelligence Agency, 2017) This means that many people within those nations can’t afford to purchase or exchange good and services from an international company. An example of a low GPD country Is Tanzania. According to a 2013 report on Tanzania, influencing factors on their GPD are consumption and exports. This is a problem as due to a low income for businesses and consumers within an African nation such as Tanzania; there are minimal exports from those types of countries. This therefore means that these third world countries need an investment, which does not happen as they can’t offer nations such as China much in return.
This is leading to a growing gap between rich and developing countries which is a concern for an international company as they want to provide their goods and services to a big, secure economy such as the U.S. (The Factors Affecting Gross Domestic Product (GDP) in Developing Countries: The Case of Tanzania, 2013).A social factor that a company needs to consider is the language barrier between countries.
This can affect a company’s business in a different country as whilst most countries speak English, a lot of countries speak another language as their first language. For example, Spanish people can speak English but their first language is Spanish. This can also mean that whilst some people speak both Spanish and English, some people within Spain may only speak Spanish. This needs to be considered by a company as if they were to set a business in Spain, they would have to present their goods and services in both English and Spanish, to ensure that a higher amount of people and businesses understand what they are offering to consumers, leading to more interest in their business.
If they are not able to do this, it will limit how many people and businesses become interested in their company, leading to a much smaller investment into their business. This will be a similar problem as well in Asian countries such as India where their main language is Punjabi. They have to ensure that they present their goods and services in Punjabi to ensure that they are presenting themselves to the widest audience for the best investment in the country.
A technological factor that needs consideration is the technological difference between countries. Now while nations such as America and China have a broad population of people that have access to the internet and social media, nations such as Sierre Leone do not have much access. Currently, only 1.
8% of the population have access to the internet which means that if a company advertised there, it would not be a worthy investment as only a few people would see the company advertisements. (the clever, 2017). This shows that while individual countries are efficiently developing over time in Africa, some countries such as Timor-Leste and Eritrea still lack a connection to the internet. And due to quite a few African nations being in the same position, companies are currently going to advertise more through the internet and social media towards technologically advanced countries like the U.S because they know that they are going to get a much more significant investment within these countries.