A brief account of the important environmental factors relevant to international business is given below.

The economic environment has much to do with the scope of business, business prospects and business strategy. The nature and level of development of the economy, economic resources, size of the economy economic system and economic policies, economic conditions, trends in the GNP growth rate and per capita income, nature of and trends in foreign trade, domestic supply and demand conditions are all factors relevant to business.

The differences in the levels of development and income have implications for the business. In the developing countries, particularly in the low income economies, the demand for many categories of goods and services is limited because of the lower levels of income. Many developing countries suffer from severe balance of payments problems. Therefore, their import policies, in general, are very restrictive.

A number of developing countries, however, hold out very good prospects for business in future because of three reasons, viz.

i.    A steady increase in population,
ii.    Increase in income,
iii.    Growing democratization and individual freedom.

The developed economies are characterized by high levels of income and consumption and business competition. Foreign trade is more liberal in comparison with that of most of the developing countries. Import restrictions are confined, by and large, to import competing  industries. The markets for many products in these economies are nearing saturation or have already saturated or even declining mostly because of the population trends.

While the advanced economies are characterized by high level of competition in the industrial sector and fast technological changes and innovation, most developing countries lag behind in these respects. The differences in the income levels may necessitate product and price modifications. This difference in the nature of demand has important implications for marketing.

The social or cultural environment encompassing the religious aspects, language, customs, traditions and beliefs; tastes and preferences; social stratification; social institutions; buying and consumption habits etc. are all very important factors business. What is liked by people of one culture may not be liked by those of some other culture. One of the most important reasons for the failure of a number of companies in foreign markets is their failure to understand the cultural environment of these markets and to suitably formulate their business strategies.

Many companies modify their products and/or promotion strategies to suit the tastes and preferences or other characteristics of the population of the different countries. For a business to be successful, its strategy should be the one that is appropriate in the socio-cultural environment. Even when people of different cultures use the same basic product, the mode of consumption, conditions of use, purpose of use or the perceptions of the product attributes may vary so much so that the product attributes, method of presentation, positioning, or method of promoting the product may have to be varied to suit the characteristics of different markets.

In short, the social environment of different markets different vastly. Even within a nation, cultural diversity may be very significant. It is essential to understand these differences to formulate successful business strategies.

Demographic factors such as size of the population, growth rates, age composition, family size, nature of the family, income levels etc. have very significant implications for business.

Advanced countries, particularly with large population, are generally attractive markets. The major part of the international trade and foreign investments naturally takes place between these nations. Because of the large potential of these markets, competition is generally strong in them.

The political environment including the characteristics and policies of the political parties, the nature of the Constitution and government system and the government environment encompassing the economic and business polices and regulations are among eh factors of utmost importance in the market selection and business strategy formulation. These factors may vary considerably between different nations.

While there are not radical differences in the philosophies of major political parties in some countries, the situation is quite different in some others. The government system in a number of countries, including several countries which are making rapid economic progress and having liberal policies towards foreign capital and technology, is not very democratic.

There are also wide variations in the policies and regulations regarding the conduct of the business. For example, certain trade practices or promotional methods/strategies allowed in some countries may be regarded as unfair by the laws of some other countries. Many governments specify standards for products to be marketed in the country. Marketing of certain products are even banned in some countries. Policies or regulations regarding quality control and inspection vary considerably between nations. Such is the case with packaging and labeling. Regulation of the quality, prices, packaging, labeling etc, is also very common.

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. are important to business. Advances in technology may also cause relocation of production. For example, several companies in the advanced countries had shifted the T.V. production to developing countries to take advantage of the cheap labour.

Technological environment of the use facilities etc. also have very important implication for business. For examples, advances in the technologies of food processing, packaging and preservation, transportation etc. have facilitated product improvement and introduction and have considerably improved the marketability of products. The advent of micro-wave ovens has given a new dimension to food marketing. Differences in the technological environment may call for product modifications.

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