Trading Environment of International Trade

Posted on Mar 21 2016 - 11:46am by Preeti

Trading Environment of International Trade

International trade

The environment of International trade is regarded as the sum total of all the external forces working upon the firm as it goes about its affairs in foreign and domestic markets.The environment can be classified in terms of domestic,foreign and international spheres of impact.The domestic environment is familiar to managers and consists of those uncontrollable external forces that affect the firm in its home market.However,it may be underlined that some of these forces(e.g. the cost of capital and export restrictions) can also have significant effect on global operations of a firm.The foreign environment can be taken as those factors, which operate in those other countries within which the MNC operates.Generally,the factors are the same, but they can have widely differing impacts from the home country situation.

The various Environmental Forces are as follows:

  1. Political-Legal Environment
  2. Economic
  3. Cultural
  4. Technological

1. Political-Legal Environment

Political environment refers to the influence of the system of government and judiciary in a nation on international business.The system of government in a nation wields considerable impact on its business.The type and structure of government prevailing in a country decides ,promotes,fosters,encourages,shelters,directs and controls the business of that country.A political environment that is stable,honest,efficient and dynamic and which ensures political participation to the people,and assures personal security to the citizen,is primary factor for economic development.The developed economies of the today owe their success to a large extent to the political system they richly enjoyed.

Legal Environment refers to the legal system obtaining in a country.The legal system then refers to the rules and laws that regulate behaviour of individuals and organizations.Failure to comply with the laws means that penalties will be inflicted by the courts depending on the seriousness of the offence.The legal system of a country is of immense importance to international trade.A country’s laws regulate business practice,define the manner in which business transactions are to be carried out and set down the rights and obligations of those involved in business deals.

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