FACTORS THAT

AFFECTS
INTERNATIONAL
TRADE AND
BUSINESS
SOCIOCULTU
RAL FACTORS
 Society and culture have an impact on every
aspect of the overseas business of multinational
companies. Although society and culture are not
directly included in business operations, they
indirectly appear as key elements in shaping how the
business is managed, from what goods are produced,
and how and through what means they will be sold,
to the establishment of managerial and operational
patterns and the determination of the success or
failure of foreign subsidiaries. Consequently,
multinational companies should be aware of
predominant attitudes, values, and beliefs in each
host country where decided to expand their business
activities.
 Differences in attitudes and values
among management of a parent company
and expatriate managers at the subsidiary
level, on the one hand, and managers and
employees in host countries, on the other,
can contribute to serious functional problems
(Ajami, Cool et al, 2006). The socio-cultural
environment is important for multinational
companies. There are various socio-cultural
factors that significantly affect the economic
activity as well as the performance of
multinational companies
 There are many definitions of culture.
According to the definition by House,
Javidan et al. (2001, p. 494), culture is
defined as shared motives values, beliefs,
identities, and interpretations or meaning
of significant
events that result from common
experiences of members of collectives and
are transmitted across age generations“.
In general, culture is considered as the
accepted behaviors, customs, and values
 • LANGUAGE
The diversity of language among various foreign
countries is a source of many challenges for multinational
companies. Although there is a tendency of accepting the
English language as a universal business language, the
companies are aware that it also provokes resistance by
locals in many of countries where they operate. Table 1
highlights the most common languages in the world.
Business communication is further complicated by the
nonverbal components of the language. Nonverbal
communication creates difficulties for multinational
companies due of various meanings of its elements in the
separate countries, such as eye contact, facial expressions,
gestures, etc. (nonvocal elements of speaking) and pitch,
volume, speaking rate, etc. (vocal elements of speaking)
 • RELIGION
Religion is considered as “a socially shared set
of beliefs, ideas, and actions that relate to a reality
that cannot be verified empirically yet affects the
course of natural and human events-a way of life
woven around people’s ultimate concerns” (Hill,
2009, p. 519). The largest religion groupings in the
world are Christianity and Islam (see Fig. 2).
Christianity numbers about 2.1 billion followers or
approximately 33% of the world’s population. On
another hand, Islam is considered as the world’s
second most practiced religion with 1.3 billion
followers or about 21% of the world’s population
(Morrison, 2008).
 • LEVEL OF EDUCATION
Education significantly affects the lifestyle of a
population of any country in the world, the way of
their thinking, their attitude toward work, etc. The
level of education varies among countries. However,
in many countries, the level of education has a
tendency to increase. Education level and level of
literacy of population of a given country are indicators
of the quality of their potential workforce. Economic
potential and progress of any country depend on the
education of its population. Analogously, education
has notably impact on international business. The
most significant economic implications of education
that are reflected on the operation of multinational
 • CUSTUMER PREFERENCES
The needs and tastes of consumers in various countries
are significantly becoming similar. According to some experts,
this social trend is known as “global convergence”. As a result
of the spread of global communication and facilitated travel
opportunities, certain social behaviors are getting similar
globally. Today, people around the world watch same movies,
listen to the same music, play the same video games and use
the same Internet websites. Consequently, the needs, tastes,
and habits become identical on a global level. The global
convergence is most present among the younger population.
Therefore, many multinational companies with global strategy
offer same or very similar products in many various countries.
As result, global market convergence is created whereby the
world is considered as a global market of same products and
services (Frynas and Mellahi, 2015).
 • THE ATTITUDE OF THE
SOCIETY TOWARDS
FOREIGN BUSINESS
The social and government attitudes
towards foreign business, especially towards
foreign companies and their products, are
one of the social factors that may have a
significant impact on the performance of
multinational companies. The social and
governments attitudes of the particular
country towards foreign companies and their
products can range from complete
acceptance and trust to complete distrust and
ECONOMI
C
FACTORS
 • Demand and Supply
There are two great economic
factors affecting business models
work – demand and supply.
Demand is how willing and able a
consumer is to purchasing what a
business offers and supply is how
able the business is to make
available what the consumer needs.
 • Marginal and Total Utility

The amount of satisfaction that is derived by

consumers from the amount of goods they have is
referred to Utility. After continuous and successive
consumption of units of same goods, the fulfilment
that is experienced by the consumer starts
depreciating. This results in short-term or long-term
fall in sales of the business. Most Organization prepare
for the launch of a different brand before the collapse
in utility and sales is experienced. The hurl of a new
brand ensures that the revenue trend of business does
not drop down. The fall down of utility is one of the
economic factors affecting businesses.
 • Money and Banking
Banking facilitates monetary and fiscal policies
that affect business and the economic environment
also the consumers of business. Money in circulation
dictates the demand of the consumers. On the
contrary, banking facility dictates the borrowing
capacity of individuals as well as the business.
Banking polices play a crucial role in affecting the
prices of goods and interest rates together with
assets prices and investments. The economic
environmentactivities and inflation are influenced by
the monetary policies of a particular country. This
whole dynamic situation is also known as monetary
 • Economic Growth and
The amount Development
of money that is being
invested into channels of long-term upgradation
and the finances of the people living in the
society at large in a particular country is decreed
by the economic growth of a country. Among all
the economic factors that are affecting business,
development is the upmost important one. As a
business needs to cater for the demands of an
economic environment potent society.eg, The
luxury brands perform hearty during an
economic upswing, much more than the
organizations which their outcome is essential
 • Income and Employment
Another crucial aspects of the
economy that affects a business
operation, are the rate of income and
employment varsity in a particular
country. The density of employment
determines the rate of demand in a
company and even the country
including the purchasing power of
individuals.
 • General Price Level
General price levels of commodities is
also a key economic factor affecting
businesses and plays a huge part in its
growth. You could talk about the cost of raw
materials for the production of commodities in
any economic environment, the paying power
of potential clients, the cost of production and
transportation rates as some of the most
important elements that end up contributing to
the retail price, thereby lowering the profits
 •Trade Cycles
This too plays an integral part in the
fluctuation of cost of goods and services
sold by a business. The cycles include
but are not limited to; depression,
recession, recovery, prosperity. These
are all phases that make up a business
cycle that dictates the demand and
supply of all goods and services and
general prices of all commodities,
whether essential or non-essential.
 • Inflation
Inflation usually occurs when the supply
of money is too much in the economic
environmentmarket while not equally
supported by a similar availably of goods and
services. Now, there is a lot floating around in
this situation. The prices of goods have to
increase one way or the other, in order to
sustain the businesses. And so there is an
increase in the cost of raw materials needed
for production. This upsurge in the cost of raw
materials obviously translates to the retail
 •Recession
Companies usually make great
losses and face dips in sales and profits
during recession. And in order to reduce
their costs most of them usually resort to
staff cuts, retrenchment and firing,
reducing capital expenditure, advertising
budgets, research and development
activities, and so on. Of course this affects
companies and organizations of all sizes
regardless of the economic environments
POLITICOLEG
AL FACTORS
 Political factors are government
regulations that influence business operation
positively and negatively. Managers must keep
a bird’s eye view over political factors. These
factors may be current and impending
legislation, political stability and changes,
freedom of speech, protection and
discrimination laws are factors affecting
business operation and activities. With a
change in administration policies, there arise
political factors that can change the entire
business scenario. These changes can be
economic, legal or social and can include the
 • Tax and economic policies

Increasing or decreasing rate of

taxes is a good example of a political
component. Government regulations
may raise the tax rate for some
businesses and can lower the same for
others due to specific reasons. This
decision will directly impact businesses.
This is why maintaining a strategy which
can deal with such situations is very
 • Political stability
Lack of political stability within a country
can significantly impact the operations of a
business. This can especially be true for
businesses that are operating on the global
scale. For instance, a hostile takeover can take
over a government. Eventually, such a situation
will lead to looting, riots and general disorder
within the environment. Such situations can
disrupt business operations and activities which
can have a major impact on its bottom line.
 • Foreign Trade Regulations
Every business has a need to expand business
operation to other countries. However, political
background of a country can influence the desire for
a business to expand its operations. Tax policies that
are particularly controlled by the government can
induce a particular business to expand operations in
different regions whereas; other tax policies can
hinder the process of business expansion for some
industries. Government initiatives, which have been
designed to support local businesses, might work
against international companies when the question
is of their competitiveness in a foreign region.
 • Employment Laws
Employment laws are made to protect
the rights of employees and include every
aspect of employer/employee relationship.
Employment law is an aspect that is very
complex and involves several pitfalls as well.
When businesses’ are in touch with the
latest developments in this law, they can
manage to take their business in the right
direction however, those who get it wrong
needs to be completely prepared for the
expensive results it will generate.
REFERENCES:

• https://www.marketingtutor.net/economic-
factors-affect-business-environment/
• https://www.marketingtutor.net/politicolegal-
factors-affect-business/
• http://www.ecoforumjournal.ro/index.php/eco/a
rticle/download/729/459
 GROUP III
Members:
Jade L. Mamigo
Michelline Lynor T. Limsiaco
Vanessa L. Monreal
Jairah S. Nanas
Jolly Ann Maalat
Stephanie T. Murilla
Lovella Magallanes
Katrina Marquez

BSBA FM-2A