INTERNATIONAL BUSINESS

Prof Benny Thomas

Reference Books : International Business By
• Subba Rao

• Francis Cherunilam

• Dr Chandran

• Sundaram and Black

• Daniels & Radebough

• Charles Hill & Jain

• Roebuck & Simon

 International Business
Independence, Dependence and Interdependence

International Trade Policy

• Laissez-faire approach (Free trade)
Vs Interventionist approach
Theories
• Mercantilism (ex Colonial rule)
• Absolute advantage and Comparative advantage (ex
India – tea, US- wheat)
• Theory of Country size (ex India, China, Brazil, USA)
• Factor Proportions Theory (ex India, Hong kong,
Singapore, Dubai)
• The Product Life Cycle Theory (Raymond Vernon’s
Theory)
 International Business
World Monetary and Exchange rate System
• Gold Specie Standard, Gold Bullion standard, Gold
Exchange Standard
Bretton Woods System 1944
1 Troy Ounce of Gold = 31.1 gms = Us $ 35

• Developed exchange rate amongst currencies.

• Today’s system – based on Purchasing Power Parity
(PPP) – how inflation and other factors impact
fluctuations in exchange rate.
• Created IMF, World Bank and GATT
• IMF developed a system for Balance of Payment and
allocation of SDR.
• Role of World Bank and GATT (eventual WTO)
Components of Balance of Payments
Item Credit Debit Net
A)Current Account
I Merchandise
II Non Monetary Gold Movement
III Invisibles

(B) Capital Account

I Private
II Banking
III Official (Govt)

(C ) IMF

(D) SDR Allocation

(E) Errors & Omissions

(F ) Reserves and Monetary Gold

 International Business
Scope : “World is turning into a Global village”.
“SMOOTH”
1. Source raw materials wherever they are cheapest.
2. Manufacture anywhere in the world where it is most
cost effective.
3. Obtain and Sell in those global markets where the
returns are highest.
4. Organize and Raise finances globally.
5. Try and Forge international strategic alliances.
6. Hire the best talent from all over the world. To
manage all the above points.
And you will have achieved the stature of a true Global
Organization
 International Business

International Business
International business can be defined as activities that buys
and sells goods and services across two or more national
boundaries, even if the management is located in a one
country. It includes any type of business activity that crosses
national borders. International business is related with
those enterprises which have operating units outside their
own country. There are institutional arrangements who
provide some managerial direction of economic activity
taking place abroad.
Conducting international business is really not like playing a
whole new ball game but it is like playing in a different ball
park, where the managers have to learn the factors unique to
 International Business

the playing field. The guiding principles of a firm engaged in

international business activities should incorporate a global
perspective. Incorporating an international outlook into the
firm’s basic statement will help focus the attention of
management on the opportunities outside the domestic
economy.
 International Business

Objectives of International Business

1. To integrate economies.

2. To offer new markets.

3. To facilitate transfer of ideas, services and capital across

the world.

4. To facilitate mobility of factors of production.

 International Business
Difference between Domestic and International business
1. Higher rate of profits (Absolute advantages, taxes,
concessions and incentives)
2. Expansion of production capacities
3. Competition (pull & push effects)
4. Wide market
5. Political stability
6. Technology
7. High cost of transportation
 International Business
Growing importance of International Business
• Current trends are towards the increasing globalisation
and interdependence of firms, markets and countries.
• Intense competition at global level
• Exchange rate developments – shift from –ve to +ve
growth
• Global capital flows to LDCs
• Differences in Price and Cost
• Restructuring the economy to integrate with global
economy
• Increased importance of CSR
• The growing importance on enhancing standard of living
in LDCs
 International Business

• Liberal trade policies and procedures

• Revolution in communication and transportation
 International Business
E P R G Model
International Business Corporate Approaches

1. Ethnocentric (Home country orientation)

2. Polycentric (Host country orientation)

3. Regiocentric (Regional orientation)

4. Geocentric (World orientation)

 International Business
Home Country Economic Environment

1. Domestic Markets & Size

2. Economic Policies

3. Promotional and Regulatory measures

 International Business
Host Country Economic Environment
1. Size of the Markets
2. Gross Domestic Product
3. Industrialisation
4. Development of Banking Facilities
5. Purchasing Power and Standard of Living
6. Foreign Exchange Situation
7. Income levels
8. Economic diversity (urbanisation – Rural dev. Ex
Johannesburg, Sao Paolo)
9. Market Segmentation
 International Business
Global Economic Environment
1. International organisations

2. Trading Blocs

3. Strategic Locations

4. Global Political Environments and Issues

 International Business
Motives of Internationalisation of Corporates
A. Pull Factors
1. Growth
2. Profitability
3. Achieving economies of scale
4. Risk spread
5. Accesses to inputs
6. Economic integration and free markets
7. Emergence of WTO
8. Unifying effect and peace
 International Business
B. Push Factors
1. Uniqueness of product or service
2. Marketing opportunities due to life cycles
3. Spreading R & D costs
4. Resource utilisation
5. Competition and costs
6. Quality improvement
7. Government policies and Regulations
 International Business
Types of International Organisation

• Built-in Export Department

• Separate Export Department

• Export Sales Subsidiary

• International Division

• Global Organisational Structure

Thank you
Foreign direct investment approvals will, however, be
subject to sectoral caps: (as on 31.03.2010)
• 20 percent (40'per cent for NRIs} in the banking sector;
•51 per cent in non-banking financial companies;
•100 per cent in power, roads, ports, tourism and venture capital funds;
•49 per cent in telecommunications;
•40 per cent (100 per cent for NRIs) in domestic air taxi operations/airlines;
•24 per cent in small-scale industries;
•51 per cent in drugs/pharma industry for bulk drugs;
•100 per cent in petroleum; and
• 50 per cent in mining ~ except for gold. silver, diamonds and precious
stones
 The Millennium Development Goals
… as defined by UN

Eradicate extreme poverty and hunger

Achieve universal primary education
Promote gender equality and empower women
Reduce child mortality
Improve maternal health
Combat HIV/AIDS, malaria and other diseases
Ensure environmental sustainability
Develop a global partnership for development
Stop Child Labour
 Survival Rate for Global Corporations
Age in Years Percentage Percentage
surviving Perishing
5 38 62
10 21 79
15 14 86
20 10 90
25 7 93
50 2 95
75 1 99
100 0.50 99.50