International Business

Management
Unit - 1
Introduction
 International Business is the process of
focusing on the resources of the globe
and objectives of the organisations on
global business opportunities and
threats.
 International business comprises all
commercial transactions (private and
governmental, sales, investments,
logistics, and transportation) that take
place between two or more regions,
countries and nations beyond their
political boundaries.
Definitions
 International business is defined as a field of
management training that deals with the special
features of business activities that cross national
borders.
- Robock & Simmonds

 International business is defined as all business

transactions that involve two or more countries.
– Daniels & Radebaugh

 International business is defined as transactions

devised and carries out across international borders to
satisfy corporations and individuals
– Grosse & Kojawa
Nature of International Business
 Involvement of commercial activity
 Involvement of two countries
 Many bases
 Language difference
 Comparative more physical risk
 Surrounded with political risk
 Proactive / Reactive
 Government Intervention
 Payment in foreign currency
 Differs from Domestic Business
Objectives of International
Business
 To integrate economies
 To offer new markets
 To facilitate interchange of ideas,
service and capital across the world
 To facilitate mobility of factors of
production
Reasons of Internationalization
 Pull Factors – Proactive Reasons
 Push Factors – Reactive Reasons
Other Reasons
 Growth
 Profitability
 Achieving Economies of Scale
 Risk Spread
 Access to Imported inputs
 Uniqueness of product / service
 Marketing opportunities
 Spreading R&D Costs
 Resource Utilization
 Competition and costs
 Quality improvements
 Economic integration & Free Markets
 Living Standards
 Emergence of WTO
 Unifying effect and peace
Internationalizing Business

FDI

Local Packaging and/or

Assembly

Direct Export

Indirect Export

license
Approaches of International
Business

POLYCENTRIC GEOCENTRIC
ETHNOCENTRIC
(Each host REGIOCENTRIC (world view, sees
(Home Country is
country is unique, (sees similarities similarities and
superior, sees
sees differences and differences in differences in
similarities in
in foreign world region ) home and host
foreign countries)
countries) countries)
Advantages of International
Business
 Maximum utilization of resources
 Stability in prices
 Economic growth
 Economies of scale
 Encouragement to industrialization
 Earning of foreign exchange
 Establishment of international cooperation
 Less cost due to the use of modern techniques
 Development of Transport and communication
 Higher standard of living
 Employment
 International brotherhood
 Greater competition
 Up gradation of technology
 Security from famine
 Escape from domestic competition
Disadvantages of IB
 Increased Costs
 Foreign regulation and standards
 Delay in Payments
 Complex Org. Structure
 Exhaustion of Natural Resources
 Cultural Differences
 Market Competition in Host Country
 National Controls
 Lack of home country support
 Dependence
 Loss to agricultural countries
 Difference b/w International
Business and Domestic Business
Basis International Domestic
Scope FDI, Licensing, Franchising Business With in the
, and trade in services etc. country
Benefits Both Nations and Firms Lesser benefit compared to
IB
Market Fluctuations Have wide market, can Have face some losses
diversify the risk
Political relations IB Improves the political Does not Improve
relations of the nations
Purvey (Deals in) Follow IB Procedures like No restrictions for Domestic
Customs and Tariff etc business
Sharing of Sharing of latest Does not share, only adopt
technology technology
Trade Restrictions Trade Practices, Govt. Very few restrictions
Rules and Licenses Etc.
Modes of Entry Export, Licensing, Easily Start the Business
Franchising, joint
Globalization
 Globalization refers to the process of
integration of the world into one huge market.

 Globalization is the process of international

integration arising from the interchange of
world views, products, ideas, and other
aspects of culture.

 Globalization is the tendency of investment

funds and businesses to move beyond
domestic and national markets to other
markets around the globe, thereby increasing
the interconnection of the world.
Components of Globalization

Globalization Globalization Globalization

Globalization
of of of
of Markets
Production Investment Technology
Factors causing Globalization

Increase and expansion of Technology

Liberalization of cross border trade and resource movements

Development of services that support IB

Growing consumer pressures

Increased global competition

Changing political situation

Expanded cross national cooperation

Country Attractiveness
 Country attractiveness is a multidisciplinary
concept at the crossroads of development
economics, financial economics, comparative
law and political science.
 it aims at tracking and contrasting the relative
appeal of different territories and jurisdictions
competing for “scarce” investment inflows, by
scoring them quantitatively and qualitatively
across ad hoc series of variables such as
GDP growth, tax rates, capital repatriation …
etc.
Contd..
 The overall attractiveness of a country
as a potential market and/or
investment site for an international
business depends on balancing the
benefits, costs, and risks associated
with doing business in that country.
Criteria for Assessing Country
Attractiveness
 Market potential
 Political, legal and financial
environment of the country
 Marketing support infrastructure in the
country
 Brand / company Franchise relative to
competing products / companies
 Degree of market fit with company
policies, goals, and resources
International Business
Environment
Political & Govt. Environment
 The political environment in which the
firm operates will have a significant
impact on a company’s international
marketing activities.
 A Govt. control’s and restricts a
company’s activities by encouraging
and offering support or by
discouraging and banning or
restricting its activities depending on
the Govt.
 Classification of Political System
 Political System as the basis : one way
◦ Parliamentary Govt.
◦ Absolutist System

 Another Way
 Two Party System
 Multiparty System
 Single Party System
 Dominated one-party

 Economic system as the basis

◦ Communist Theory
◦ Socialism Theory
◦ Capitalism Theory
Key Aspects in Political System

Key Aspects

Individualism Democracy and

and totalitarianism
collectivism
Economic Environment
 The economic environment consists of
external factors in a business market
and the broader economy that can
influence a business.
 The economic environment can divide
into the microeconomic environment,
which affects business decision
making - and the macroeconomic
environment, which affects an entire
economy and all of its participants.
Contd.. Macroeconomic factors
 Macroeconomic influences are broad
economic factors that either directly or
indirectly affect the entire economy and
all of its participants, including your
business.
 These factors include such things as:
 Interest rates
 Taxes
 Inflation
 Currency exchange rates
 Savings rates
 Unemployment rate
 Recession
Microeconomic factors
 Microeconomic factors influence how your
business will make decisions. Unlike
macroeconomic factors, these factors are far
less broad in scope and do not necessarily
affect the entire economy as a whole.
◦ Microeconomic factors influencing a business
include:
 Market size
 Demand
 Supply
 Competitors
 Suppliers
 Distribution chain, such as retail stores
Preliminary economic indicators
 Size of demand
◦ Level of income
◦ Inflation
◦ Consumption behavior

 Cost of production
◦ Availability of Human resources and physical
resources
◦ Network of infrastructure
◦ Fiscal, monetary, and industrial policies

 Smoothly repatriation
◦ Income and profit depends upon the strength of the
external sector
 Economic Systems
 Planned Economy
 Social ownership of means of production
 Centralized planning – planning authority prepares plan for resources
allocations
 Social welfare rather than profit motive

 Market Based Economy

 Private enterprises, materials means of production are owned by
private sector, accumulation of wealth, consumers sovereignty, etc
 Market mechanism to allocate resources
 Profit motive

 Mixed Economic System

 Co-existence of public and private sector. Joint sector also
 Planning and price mechanism lead to resource allocation
 Profit motive and Social welfare objective
Socio – Cultural Environment
 Culture is that complex whole which
includes knowledge, belief, art,
morals, law, custom and other
capabilities acquired by man as a
member of society.
Determinants of culture

Religion

Social Work
Structure Motivation

Culture
norms &
value
Systems
Education Public
& Policy &
language laws

Individual
& groups
Natural & Technological
Environment
 Natural
◦ The natural environment is another important factor of the
macro-environment. This includes the natural resources
that a company uses as inputs that affects their marketing
activities.
◦ The concern in this area is the increased pollution,
shortages of raw materials and increased governmental
intervention.

 Technological
◦ Businesses are affected by changes in the technological
environment.
◦ Technology is simply the application of knowledge to
control or change our environment.
◦ Technology can be divided between products and
processes.
 Protection Vs Liberalization of
Global Business Environment
Basis Protection Liberalization
Meaning Protectionism is the economic The removal of
policy of restraining trade restrictions on the free
between states through trade of goods between
methods such as tariff, quotas countries
and other measures
Techniques Tariffs, quotas, subsidies, local Removal of trade
content requirement, etc barriers
Reasons / Is to encourage domestic Encourages the
motive industry International business
Compliance Domestic Rules and Consider the rules and
to Regulations have to be regulations of foreign
international compiled with country with which it is
rules and trading
regulations
Contd.
Basis Protection Liberalization
Pre – Considering the culture of Carefully observe and
requirement domestic industry and understand a country’s
economy culture before trading
with it
Advantages Protects Domestic industry, It can help to lower
encourages employment prices and wide range
and growth opportunities in of quality goods and
home country services
Disadvantages It reduces overall volume of Unsustainable
world trade, low global utilization of
income, employment resources, affects the
opportunity, and less variety domestic industries
of goods