It has been, and still is, thought in American business circles that the superiority of American business practices, methods, and knowledge compared to that of local companies in any part of the world results in quick and lasting success. However, this is not always the rule, and the major barrier often is due to the lack of understanding of foreign environments and cultures, such as those found in Italy and Mexico, which often results in numerous business errors by American subsidiaries. Thus, the purpose of this study was to determine, (1) What environmental factors may affect American subsidiary operations in Italy and Mexico, and (2) How and why they affect these operations. The infection detailed and analyzed in this paper was derived from recent research completed in Italy and Mexico. Twenty American subsidiaries and ten Italian and ten Mexican companies were selected for participation in the study on the basis of their size (i.e., as measured by the number of employees) and the nature of their product (i.e., industrial machinery, electronics, cosmetics, pharmaceutical, and chemicals). Within these companies a total of 136 personal interviews (i.e., 74 managers in Italy and 62 managers in Mexico) were held and questionnaires completed concerning the major factors in the Mexican and Italian environments which affect management practices. The results indicate that of the 12 environmental factors discussed by the 136 managers interviewed, three were considered to have the greatest affect on American business subsidiary operations in Italy and Mexico. They were: 1) A shortage of current and reliable social and economic data, 2) The Italian and Mexican educational system's inability to provide business with grained executive manpower, and 3) Government taxation of business resulting in double accounting methods. It is hoped that the information presented in this article will aid American companies considering the establishment of operations in Italy and Mexico to avoid strategic errors and problems and to establish efficient and productive operations. [ABSTRACT FROM AUTHOR]