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Understanding Challenges in International Business Environment

Ashish M. Shaji

| Updated: May 10, 2021 | Category: Business Plan

Understanding Challenges in International Business Environment

International business is not easy to undertake due to the challenges in International Business Environment. It faces numerous uncertainties and challenges like different political environments, taxation and other legal barriers. In this article, we shall cover some of the prominent challenges faced in the international business environment.

Overview of International Business Environment

International Business Environment refers to trading across the world. In other words, it means selling and buying goods and services across the world. International business connects with transactions taking place across borders while keeping the management in a single country.

The scope of international business has enhanced as it focuses on opportunities and challenges in the business environment that operates on global level. The differentiating factor of this business from domestic business is that international business functions in an uncertain environment altogether subjected to rapid changes with the probability of enhanced income and customer base.

What are the types of International Business Environment?

Some of the major types of International Business Environment are:

  • Political Environment-

Political environment includes the kind of government that operates in an economy, its laws, policies etc. While doing business in other countries, business owners deeply considers the relationship of government with businesses and the political risk prevalent in the country.

  • Economic Environment-

In this, all factors are considered while doing business in a country. Each country may differ in terms of its economic environment depending on the category of the country, whether it’s developed, developing or underdeveloped country. The economic environment is deduced after taking into variety of factors like National and Per capita income[1], taxation aspects, availability of raw materials, infrastructure facilities etc.

  • Technical Environment-

Technical environment pertains to technical up-gradation as well as advancement in technological adoption and methods of manufacturing and production. The success level of a business relies upon the acceptance level and utility of technological innovation in various countries. With technical advancement, businesses gain competitive advantages and stay competitive on global terms.

  • Cultural environment-

Culture in a country means beliefs and values followed in the country. Factors like language, history, level of education, resistance to change, lifestyle of people etc., combine to become the cultural environment of a country.

Challenges in International Business Environment

Businesses today are expanding and diversifying like never before to reach new clients, increase their customer base and increase their overall profits. As global markets become more accessible than yesteryears and more interconnected, there are risks and challenges involved in international business which should be tackled.

Some of the major challenges in International Business Environment are as follows:

Challenges in International Business Environment
  • Company’s structure

The structure of the company may pose a challenge to your business if its working structure is not pre-decided. There should be a qualified team if the company wishes to be globally competitive, for which it would consider the organization structure and location from where the team operates.

  • Foreign Laws

Not having clear understanding of the foreign laws poses a challenge for international businesses. Therefore gain a comprehensive understanding of laws and regulations. There have been instances where businesses had to face the heat due to the lack of understanding of foreign laws. It’s a major challenge that needs to be attended.

  • Accounting

It is a critical concept when it comes to multinational business liable to pay corporate tax in the countries they operate. Various tax implications, tax rates and compliance requirements make accounting a challenge in international operation.

  • Liability to pay taxes

A company is liable to pay taxes in the country of its operations. Paying multiple taxes proves to be a challenge for companies with double taxation even reducing their overall revenue. Tax liabilities pose a challenge to companies because of lack of understanding of tax concepts like tax treaties between countries etc. Companies should get advice and knowledge in tax concepts which can help the company.

  • Payment methods

Payment methods become one of the most terrain challenges in international business environment. This is because payment methods applicable in the home country may not be acceptable abroad. Therefore it becomes a challenge for any business as payment is the key of running business. However, to tackle this, businesses may decide to keep different methods of accepting payment.

  • Fluctuation in currency rates

Fluctuation in currency rates is one of the challenges in international business environment that should be considered by the business operating overseas. Major volatility can affect the expense and profits.

  • Cultural Differences

Communication is an efficient skill for businesses, whether operating in the home country or overseas. However, differences in cultures and languages across countries constitute a significant challenge. Considering that effective communication is critical for international business success, companies look to adopt means to bridge cultural differences.

  • Political risk and Terrorism

International businesses have to deal with cases of political instability, and uncertainties as political risk is a major challenge and threat. Regulations and policies that are not pro-business can adversely affect the working of a business.

Terrorism has also been another massive issue that needs to tended as global trade is not easy with terrorism.

Conclusion

There are numerous challenges in international business environment which should be overhauled proactively. We may see new forms of challenges in the future as well but are we prepared.

Read our article: Factors Affecting International Business -Domestic, Foreign and Global Environment

Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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