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Chapter- 1 Introduction to IBEWorld Around Us

International Business Environment

What is Business Environment? All the forces surrounding and influencing the life and development of the firm. Sum total of the factors external to and beyond the control of the management of an enterprise.

Environment Affecting International Business

Domestic Environment International Business

Foreign Environment

International Environment


Domestic Environment


Domestic Business

Competition from

Foreign Competitors

in own market

Environment of LPG

Liberalization (L) Liberalizing policies and procedures governing business. Simplifying procedures relating to business. De-licensing Privatization (P) Encouraging privatization of ownership of business.

Minimizing the role of the Government. De-reservation Disinvestment Globalization (G) Integrating the economy into the world economy- removing all sorts of barriers. A world without walls. Must have a global vision.

Domestic Business Same

International Business

Basic Functions Principles

Difference Environment within which these functions are performed and processes are carried out.

Relevance of International Business Environment

Central Issues in entering into international business Which market (s) to select? How to enter into those markets? - Decisions are strategic in nature and influenced by the environmental forces. - Target markets should have enough market potential.

Understanding International Business

Any sort of business activity that crosses national boundaries or borders. Activities relating to industry and commerce performed on an international level. International Business includes: Import and Export of commodities, manufactured goods and services.

Investment of capital in several manufacturing and other related activities. Investment of capital in international services like banking, insurance, advertising, tourism, etc. Transactions involving copyrights, patents, trademarks, etc. (Levels of risks involved in international business are higher than those in domestic transactions.)

What we mean?

IB: Business whose activities involve crossing national/ domestic borders. MNC: A firm having operations in more than one country, international sales and a nationality mix of managers and owners. A firm with multi-country affiliates, each of which formulates its own business strategy based on perceived market differences.

Foreign Business: Domestic operations within a foreign country. Used inter-changeably with international business. Global Company: A firm attempts to standardize operations worldwide in all functional areas. International company: Both global and multinational companies.


Multicultural Multinational: Firm attempts to achieve economies of scale through global integration and highly responsive to different local environments. Global Localization: Think globally but act locally. Balance between standardized and localized approaches.


Environmental Issues

Why watches, chocolate, cheese, precision machinery, pharmaceuticals are produced in Switzerland? What do they have in common? Why Cambodia earns a good amount of foreign exchange from tourism services? Why India is a major exporter of software and also primary products? Why many US multinationals were interested to venture Vietnam during the late 1990s?

Why some foreign investors desire to come out from making any further investment in Philippines during mid 2005? Why foreign investors consider China and India as their right destinations? What is common in both the countries? Why the Share of Asia in world merchandise exports had fallen during 1997 - 1998? Why many developed and developing countries had faced fall in their growth, out put and volume of trade in 2008 and 2009?

International Business Environment The Trend

Intense competition among industries, firms and countries on a global level is a recent development. The present trends are towards the increasing globalization and interdependence of firms, markets and countries. In a bid to meet commitments to institutions like WTO, IMF and WB, country after country is pulling down barriers to foreign trade and investment.

There is a growth of organization and administrative structures to manage resources and risks across national boundaries. Quantitative restrictions on foreign trade are being dismantled speedily and tariff barriers are on the decline. New opportunities to foreign investors and entrepreneurs are being provided to operate in the countries. The MNCs are expanding their operations by aggressively adopting marketing strategies to local conditions.

In the coming years there may be extinction of many business and considerable realignments in many others by M & A, etc. In future MNCs will gear up their activities due to the presence of huge potential market. Many firms having indigenous technology in less developed economies will fail to compete with the MNCs. Number of small units may close up their activities or may merged with the big companies.

The World around us- Discussions (Extra Sheet)