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Domestic Environment in Business: Definition & Overview

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  • 0:02 What is the Domestic…
  • 0:51 Factors
  • 3:43 Lesson Summary
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Lesson Transcript
Instructor: Ashley Johns

Ashley has taught college business courses and has a master's degree in management.

Owning a business means you must decide if you want to enter international markets. This lesson reviews the domestic environment in business. You will see the advantages and disadvantages, as well as how it compares to the international environment.

What Is the Domestic Environment?

You've always dreamed of owning a restaurant. After contemplating your options, you decide to buy into a franchise. You have a couple in mind but need to make a final decision. This decision has come down to purchasing a franchise that does business globally versus one that is only in the United States. A friend tells you to take a look at the domestic environment prior to diving into becoming a business owner.

The domestic business environment includes the climate, business policies, business facilities, business regulations and rules, logistics, political setup, style of governance, culture, traditions, belief system, economy, etc. of the country the business operates in. This is in contrast to global business environment, which is the factors outside the country the business operates in.

Factors

There are advantages and disadvantages to everything in life. Staying domestic or going global is no different. You have to look at the industry your business is in and review what impacts it. Factors that impact the domestic environment include market analysis, cyclical changes, market size, communication, access to materials and labor, and reporting. Let's look at each of these in more detail.

Market analysis is the understanding of your customer's wants and needs. This is a simpler task in the domestic environment and gives you an opportunity to predict the trends. Completing this task in a global environment involves massive research in each country. For example, McDonald's has different menu options for each market, which, no doubt, took large amounts of research into customer preferences to design.

Cyclical changes refer to the ups and downs in the economy. The domestic business environment has an easier time predicting these changes, but the impact is stronger in the domestic business environment than the international. For example, if you sell hamburgers and the local price of beef has recently increased, what will that do to your profit? Buying local will increase your cost and decrease your profit. Having the opportunity to purchase from international sellers who have lower priced beef, could decrease your cost and increase your profit.

Market size refers to the potential number of customers your business can sell to. The domestic environment has a disadvantage in this area because it limits the number of customers to the country the company operates in. On the other hand, the global environment has an unlimited number of customers. This may not have much impact on your restaurant franchise, but if you decided to sell items online, you would see a serious impact.

Communication is how employees interact with one another. The domestic environment has an advantage because employees typically speak the same language and have similar cultures. Global environments have to monitor this closely to ensure there is no misunderstanding in communication.

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