International business focuses on global resources, opportunities to buy or sell worldwide.

Evolution of international business the first phase of globalisation begin around 1870 and ended with the world War
first in 1919 after the World War II different approach towards international trade was required, consequently 23
countries conducted negotiation in 1947 in order to prevent the protectionist policies and to revive the economy is
from precision aiming at the establishment of international trade organisation. This attempt of advanced countries
ended with the General agreement on trade and tariffs (GATT) that provided a framework for a series of rounds of
negotiations by which tariffs were reduced later during 1980 the GATT was replaced by WTO on 1 January 1995.

The term international business has emerged from the term international marketing which in turn is emerged from
the term international trade.

International trade to international marketing: originally the producers used to export their product to nearby
countries and gradually extended the exports too far off countries.
International marketing to international business
the multilateral companies which are producing the products in their home countries marketing them in various
foreign countries before 1980 started locating their plants and other manufacturing facilities in foreign countries or
host countries.

Drivers of globalisation
the government of member countries of GATT trade Uruguay round of negotiations on 15 th of December 1994. The
ministers expressed their political support to outcome of the meeting percent in the final act Marrakesh Morocco on
15 April 1994 the WTO was established with effect from 1 January 1995

regional integration:
the regional integration of countries of the same region or alias increases the size of market, aggregate demand for
the products and services, quantity of production, employment and ultimately the economic activity of the region.
Further, the people of the region get a variety of products at comparatively lower prices. This factor enhances the
purchase power and living standards of the people these regional integration include European Union, NAFTA, ASEAN,
SAARC, EFTA, APEC, MERCOSUR, ANDEAN .

Declining trade barriers

advance countries after World War II agreed to reduce the tariff in order to encourage free flow of goods

Declining investment barriers

various countries have been removing the barriers on foreign direct investment in order to encourage the growth of
global business. The global business firms invest capital in order to establish many manufacturing and other facilities
in foreign countries. Foreign governments impose barriers on foreign investment in order to protect the domestic
industries.

Growth in foreign direct investment

the investment made by a company in new manufacturing or marketing facilities in a foreign country is referred as
foreign direct investment there are various reasons for the growth of foreign direct investment such as increasing sales
and profits, entered into rapidly growing market, reducing cost, consolidate trade blocks, protect domestic markets,
protect foreign markets, acquire technological and managerial know-how. Few countries like China Hong Kong Brazil
Mexico India and Singapore are receiving over 50% of FDI among developing countries.
Growth of multinational companies
multinational corporation or company is an organisation doing business in more than one country. Transnational
company produces, markets, invests and operates across the world.

Strides in technology
the development in microprocessor, telecommunication, Internet and World Wide Web, online globalisation and
transportation technology,.

Influences of international business

the characteristic features of international business includes accurate information, timely information, size of
business, market segmentation.
Potentiality of market international business present a more potential than the domestic market this is due to the fact
that international businesses are wide in scope, varied in consumer tastes, preferences and purchasing abilities, size
of population etc. the international business should consider consumers’ willingness to buy and also ability to buy the
products

Differences in government policies, laws and regulations

sovereign government enact and implement the laws, formulate and implement policies and regulation. The important
factors to be considered includes host countries monetary system, national security policies of the host countries,
cultural factors, language, nationalism.

Stages of internationalisation
stage I domestic company
domestic company limits its operation, mission and vision to national political boundaries this company focuses its
view on domestic market opportunities, domestic suppliers, domestic financial companies, domestic customers. It
analyses the National environment formulate strategies to exploit the business opportunity offered by the
government. The domestic company never think of growing global. If it grows beyond its present capacity, the
company selects the diversification strategy of entering into new domestic markets, products, technology but never
selects the strategy of expansion or penetration into international market.

Stage II international company

some domestic companies grow beyond their production or marketing capacities think of internationalising their
operation. The focus of these companies is domestic but extends the wings to the foreign countries. the international
company holds the marketing mix constantly and extent of opposition to new countries thus international company
extends the domestic country marketing mix and business model and practices to foreign countries. these companies
remain ethnocentric or domestic country oriented.

Stage III multinational company

the international companies learn that extension strategy that is extending the domestic product, price and promotion
to foreign markets will not work. The international companies turning to multinational companies when they start
responding to specific needs of the different country markets regarding product price and promotion. This stage of
multinational company is also called as multi-domestic. Multidomestic company formulates different strategies for
different markets does orientation shift from ethnocentric to polycentric. Under polycentric orientation, subsidiaries
or offices of multinational company work like domestic company in each country inherited operate with distinct
policies and strategies are suitable to the country concerned.

Stage IV global company

the global company is the one which has either global marketing strategy or a global strategy. Global company either
produces in home country or in a single country and focuses on marketing these products globally or produces globally
and focuses on marketing these products domestically.

Stage V Transnational company

Transnational company produces, markets, invests and operates across the world. It is integrated global enterprise
that links global resources with the global markets at profit there is no pure Transnational companies however most
of trust – the companies satisfy many of the characteristics of global corporation.

Characteristics of a transnational company

geocentric orientation
Transnational company geocentric in orientation. Thinks globally and acts locally. The assets are distributed
throughout the world. the research and development facilities, production facilities are spread by specialised and
integrated. Knowledge and experience are shared jointly.

Scanning or information acquisition

these companies collect data and information worldwide regardless of geographical and national boundaries

Vision and aspirations

the vision and aspirations are global, global markets, global customers and go ahead of other companies
Geographic scope: the analyses data for opportunities, challenges, threats
operating style: key operations are globalised.
Adaptation: they adapt their products, marketing strategies and other functions strategies to the environmental
factors of market concern.
Extensions: product not require any changes when they are marketed in other countries there market is just extension.
Creation to extension: they create global brand through extending product into new market.
HRM policy: select the best HR policy and develops them but key position and top positions are reserved for nationals.
Purchasing: procure world-class material from the best source across the globe.

International business approaches

ethnocentric approach: under ethnocentric approach the domestic companies view foreign market as an extension to
the domestic markets. Domestic companies formulate their strategies their product design their operation towards
the national market, customers and competitors and their overproduction push companies to export the same product
designed for the domestic markets to foreign countries under this approach.

Polycentric approach: under polycentric approach companies establish foreign subsidiary and decentralisation all
operation, delegates decision-making, policy-making authority to its executives it appoints key personnel from home
country and other vacancies from host country. it focuses on conditions of host country in policy formulation strategy
implementation and operation.

Regiocentric approach: under Regiocentric approach subsidiaries consider regional involvement in policy and strategy
formulation. The thinks of exporting to neighbouring countries of host country. it markets more or less the same
product designed under polycentric approach in other countries of the region but with different market strategy.

Geocentric approach: under geocentric approach companies view entire world as a single country. The select
employees from entire globe and operate with number of subsidiaries in formulating policies. Each subsidiary company
functions like independent and autonomous company in formulation of policies, strategies, product design and HR
policies.

Goals of international business

 to achieve high rate of profits
 expanding the production capacities beyond the demand of domestic countries
 severe competition in home country
 limited home market
 political stability versus political instability
 availability of technology and competent human resource
 high cost of transportation
 nearness to raw material
 availability of quality human resource at less cost
 liberalisation and globalisation
 increase market share
 to achieve higher rate of economic development

Advantages of international business

 high living standards
 increased socio economic welfare
 wider market
 reduced efforts of business cycles
 reduced risk
 large scale economies
 potential untapped markets
 provides the opportunity for and a challenge to domestic business
 division of labour and specialisation
 economic growth of the world
  optimum and proper utilisation of world resources
cultural transformation
knitting the world into closely interactive traditional village

competitive advantage
according to Pitts and snow, competitive advantage is any future of business firm that enables it to a earn higher return
on investment, despite counter pressure from competitors.

Problems of international business

political factors
huge foreign indebtedness
exchange instability
entry requirements
tariffs, quotas and trade barriers
corruption
bureaucratic practices of government
technological pirating
quality maintenance

MODES OF ENTRY INTO INTERNATIONAL BUSINESS

theories of international trade

mercantilism
this theory suggests that countries should export more than the import and receive the difference in the form of
gold. It was developed during 1500 to 1800. It suggest maintaining favourable balance of trade in the form of import
of good for export of goods and services. But the decay of gold standard reduced validity of this theory. Later this
theory was converted into Neo-mercantilism. It suggest that countries attempt to produce more than the demand in
the domestic country in order to achieve a social objective like full employment in the domestic country or a political
objective like assisting a friendly country.

Theory of absolute cost advantage

Adam Smith, a Scottish economist proposed this theory of free trade to increase countries wealth. Free trade enables
the country to provide a variety of goods and services to its people by specialising in the production of some goods or
services and importing other goods and services. It was formulated in 1776 based on principle of division of labour.
Every country should specialise in producing those products which it can produce at less cost than that of other
countries and exchange these products for the products produced cheaply by other things. Natural advantage is due
to climate condition natural resources etc. Acquired advantage is due to technology and skilled development.
Following are the assumptions of this theory: trade is between two countries, only two commodities have
traded, trade exist between the countries, the only element of cost of production is labour. The criticism of this theory
are as follows: no absolute advantage of developing countries for any product, country size vary, variety of resources,
transportation cost, scale of economies, some country may have absolute advantage for many products.

Competitive cost advantage theory

it was formulated by David Ricardo a British economist, a country should produce and export of those products for
which it is relatively more productive than that of other countries. Following are the assumptions of this theory: there
exist full employment, only element of cost of production is labour, production is subjected to the law of constant
returns, there are no trade barriers, trade is free from the cost of production, trade between two countries with two
products, no cost of transport .
This also gives opportunity cost concept. It also suggests that Lower labour cost need not a source of competitive
advantage. It failed to consider the money value of cost of production.

Comparative advantage with money

FW Taussig formulated this theory. According to this theory comparative differences in the labour cost of commodities
can be translated into absolute differences in prices without affecting the real exchange relation between the
products. Criticism of this theory is as follows: two countries participating the trade, there is no transportation cost,
only two products are traded, full employment of the resources, it do not consider mobility of resources, it only
consider products or services

Relative factor endowments / Heckscher- Ohlin theory

factor endowments land, capital, natural resources, labour climate. According to this theory if labour is available in
abundance in relation to land and capital in a country, the price of labour below and price of land and capital will be
high or vice versa. These relate to factors cost would lead countries to produce products at lower cost.
Land and labour relationship: countries their area of land is available is less in relation to the people, it go for multi-
storey factories and produce lightweight products.
Labour and capital relationship: countries where labour is abundant in relation to capital, export labour-intensive
products or vice versa.

Leontif paradox: you observe that US exports are labour-intensive as compared with US imports. But it is as you do
that USA has abundant capital relative to labour. Therefore this surprise finding is known as LEONTIFF PARADOX. This
is because of variation in labour skills. Advanced countries have high labour skills as compared to developing countries.
Therefore, advanced countries have competitive advantage exporting products requiring high labour skills while
developing countries have advantage in exporting products requiring less skilled labour

Country similarity theory

Stephane Linder proposed the phenomena of intra-industry trade in 1961. The similarities in consumer preferences in
the countries that are at the same stage of economic development provide the scope for intra-industry trade among
countries. The company’s that develop new products for the domestic market, export same order to those countries
that are at a similar level of development after meeting the needs of domestic market.

Product life cycle theory

Raymond vernon formulated this theory. Traces the roles of innovation, market expansion, competitive advantage
and strategy response of global rivals in international manufacturing, trade and investment decisions. It consist of four
stages new product introduction, growth, maturing product, decline.
1. Forms innovate new products based on the needs and problems in the domestic country. Labour is major
input in this stage. Marketing executives continuously take feedback from customer and develop product
continuously.
2. The growth stage resulting attracting competitors, increased exports, further innovation, shift manufacturing
to foreign countries.
3. The maturity stages result in standard product, large scale production and economies, low unit cost of
production, shift in manufacturing to developed countries
4. decline is characterised by location of manufacturing facilities in developing countries and original innovating
country becomes net importer.
Limitation of this theory is given below: production facilities do not move to foreign countries due to short product
life cycle of rapid innovations, cost reduction has little concern in luxury product, export result in high
transportation, specialised knowledge is required rapid technological development may happen, sometimes MNC
may establish production in other countries for raw material, human resources, transportation cost.

Global strategic rivalry theory

Paul Krugman and Kelvin Lancaster developed this theory itself is that for struggle to acquire and develop some
suitable competitive advantage. It focuses on forums strategic decision to acquire and develop competitive
advantage in order to compete internationally. They may develop competitive advantage with the help of
intellectual property rights, research and development, achieving large scale economies.

Michael Porter’s national competitive advantage theory

competitive superiority is derived from four factors: demand conditions, factor endowment, firm strategy
structure and rivalry and related, supporting industries.. It is also called as Porter Diamond. Factory conditions
include factors of production, education of labour, countries infrastructure. The demand condition include large
number of sophisticated domestic consumers who are economically able and willing to consume and create
demand for a product. Related and supported industries include supplier of raw material, market intermediaries,
financial companies, consulting agencies, ancillary industries. Firm strategy, structure and rivalry includes
continuous improvement in quality, product design, research and development, investment in HR, investment in
technology.

The fact that fits international business include social and cultural factors, technological factors, economic factors,
political or governmental factors, international factors and natural factors. (STEPIN)