The Impact of External Factors on International Businesses

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Table of Contents

Introduction
Overview of the Importance of External Factors
The Influence of External Factors on Competition in the Tourism Industry
Transfer of Knowledge and Channel Operations
Insights from the Study of Serbian Experience
Conclusion
References

Introduction

Various forces and circumstances that influence the performance of international businesses are traditionally categorized into internal and external factors. This paper focuses on the impact of external factors as they tend to be less controlled by a particular business or company, and thus more effort is needed to handle them. The importance of the external environment is largely recognized in the contemporary scholarly literature concerned with business issues. Therefore, the purpose of this paper is to give an overview of different perspectives on the role of external factors on the performance of international businesses because each industry has its distinct features. By referencing scholarly literature, this essay aims to retrieve recent and valuable knowledge about business operations in the context of external environments.

Overview of the Importance of External Factors

Janković, Mihajlović, and Cvetković (2016) argue that “external factors affect almost every aspect of the business, whether it is the location of the market, product price, product distribution” (p. 32). External factors are defined as the “aggregate environment that may have a direct or indirect impact on the performance of companies” (Janković et al., 2016, p. 33). Cao (2017) focuses on a more particular aspect of the problem in his article, stating that channel operations of companies are significantly dependent on external factors.

Shaw and Luiz (2018) observe that four principal dimensions of international business, namely cultural, administrative, geographic, and economic, have a direct impact on how knowledge is produced, disseminated, absorbed, and transferred within multinational corporations. Also, Shaw and Luiz (2018) employ the term “cultural distance” to describe the external environments. Additionally, Camisón and Forés (2015) assume that external factors are significant in the context of the tourism industry since the companies in this industry have to operate in various environments. The authors also enumerate the following examples of external forces that can influence international businesses: “the general environment or country effect, the regional effect, the competitive environment or industry effect, the district effect” (Camisón & Forés, 2015, p. 477).

Overall, it is appropriate to state that the topic of external factors and their impact on the performance of international businesses is well-developed in the contemporary academic literature. This section provides an overview of the business articles by various authors that explore the application and influence of external forces on international organizations. The following sections will provide more particular insights connected with certain areas of business.

The Influence of External Factors on Competition in the Tourism Industry

In their article, Camisón and Forés (2015) explore various approaches to explaining how external factors influence the competition between companies in the tourism industry. The authors mention several significant factors that should be considered when studying the concept of competition: the country effect, the industry effect, the tourist destination, the geographical location, and several others. Nevertheless, the most important external factor is “the endowment of shared assets in the district to which they belong” (Camisón & Forés, 2015, p. 489). However, as the result of their study, the authors conclude that the internal capabilities of companies in the tourism industry are more important than the external environment.

Transfer of Knowledge and Channel Operations

The study by Shaw and Luiz (2018) suggests that external factors are a highly important aspect of gaining valuable knowledge about the international company’s operations. Therefore, by gathering, processing, and transferring knowledge, a firm can improve its performance and enhance its results. The authors focus on the concept of distance since they assume that it provides sources of unique, diverse, and nonredundant knowledge (Shaw & Luiz, 2018).

One of the primary findings of the study by Cao (2017) is that there is an evident connection between the external channel environment and channel governance behavior. In the article, the author develops a structural equation model, which includes the analysis of the external factors that impact the behavior and performance of international businesses. Cao (2017) concludes that in dynamic and complex external environments, international firms can perform relatively better.

Insights from the Study of Serbian Experience

Janković et al. (2016) explore the topic of external factors in the context of Serbian firms. Economic, social, political, and legal areas are mentioned as various manifestations of the external environment (Janković et al., 2016). Particularly, the authors mention the following examples of the most important external factors: “high tax rates, high levels of corruption, fluctuation of the exchange rate, political instability in the domestic market, and inadequate legislation” (Janković et al., 2016, p. 34). It is stated by Janković et al. (2016) that the sector of international business is highly complex and competitive.

Conclusion

In conclusion, it is essential to observe the immense significance of the external factors on the performance of international businesses. The paper retrieves insights from various areas of business knowledge. By exemplifying the experience from different industries, this essay develops a critical understanding of how external factors are applied to business and how they affect decision-making in international companies. The scholarly literature on the topic is highly diverse, which provides the opportunity to learn from various theoretical and practical perspectives.

References

Camisón, C., & Forés, B. (2015). Is tourism firm competitiveness driven by different internal or external specific factors?: New empirical evidence from Spain. Tourism Management, 48, 477-499.

Cao, G. (2017). The influence of external channel environment on channel governance. International Business Research, 10(5), 61-72.

Janković, M., Mihajlović, M., & Cvetković, T. (2016). Influence of external factors on business of companies in Serbia. Ekonomika, 62(4), 31-38.

Shaw, B., & Luiz, J. M. (2018). The impact of distance (external) and organizational factors (internal) on the knowledge chain of multinational corporations: South Africa as a host country. Thunderbird International Business Review, 60(3), 295-311.

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