Page 4 - L1

from one another in terms of their socio -economic development, availability, cost and efficiency
of economic infrastructure and market support services, and business customs and practices due
to their socio-economic milieu and historical coincidences. All such differences make it
necessary for firms interested in entering into international markets to adapt their production,
finance, human resource and marketing plans as per the conditions prevailing in the international
markets.
(vi) Political system and risks: Political factors such as the type of government, political party
system, political ideology, political risks, etc., have a profound impact on business operations.
Since a business person is familiar with the political environment of his/her country, he/she can
well understand it and predict its impact on business operations. But this is not the case with
international business. Political environment differs from one country to another. One needs to
make special efforts to understand the differing political environments and their business
implications. Since political environment keeps on changing, one needs to monitor political
changes on an on-going basis in the concerned countries and devise strategies to deal with
diverse political risks.
A major problem with a foreign country’s political environment is a tendency among nations to
favour products and services originating in their own countries to those coming from other
countries. While this is not a problem for business firms operating domestically, it quite often
becomes a severe problem for the firms interested in exporting their goods and services to other
nations or setting up their plants in the overseas markets.
(vii) Business regulations and policies: Coupled with its socio- economic environment and
political philosophy, each country evolves its own set of business laws and regulations. Though
these laws, regulations and economic policies are more or less uniformly applicable within a
country, they differ widely among nations. Tariff and taxation policies, import quota system,
subsidies and other controls adopted by a nation are not the same as in other countries and often
discriminate against foreign products, services and capital.
(viii) Currency used in business transactions: Another important difference between domestic
and international business is that the latter involves the use of different currencies. Since the
exchange rate, i.e., the price of one currency expressed in relation to that of another country’s
currency, keeps on fluctuating, it adds to the problems of international business firms in fixing
prices of their products and hedging against foreign exchange risks.