THE COMPONENTS OF FOREIGN ENVIRONMENT

All the three types of environments, viz., domestic, foreign 'and global environments have their effects on international business operations.  Because of the vastness of subject, it is not possible to discuss all the three types of environments and their impact on business in one unit.  The present unit, therefore, confines itself to a discussion of various components of foreign environment. The other two types of environments and their business influences are examined in detail in other units. Foreign environment was described, in the preceding section as consisting of geographical, economic, financial, socio-cultural, political, legal and ecological forces.  A firm needs to examine these components of the environment for each one of the foreign countries in which it operates.  A brief description of these components and their influence on the firm's international business operations is provided in the following sub-sections. Though ‘we shall be discussing each of the components separately, in reality there exists a lot of overlapping as well as interactions among various components.  Population, for instance, is discussed in literature as, an element of both the physical and economic environments.  There is a lot of overlapping among the socio-cultural, legal and political forces. Geographic characteristics of a country have profound impact on the country's economic and socio-cultural environments.

Moreover, it should be kept in mind that all the components-and elements of the environment might not be relevant to a decision maker.  Much depends on the nature of the firm and its decisions. For a small firm interested in exporting, analysis of the commercial policy and the economic environment would be sufficient. But for a multinational corporation interested in setting up a manufacturing plant in a foreign country, geographic as well as socio-cultural, legal and political environments would be as important as the economic environment.