International Business:

Module 1: Introduction: International Marketing-Trends in International Trade-Reasons for Going

International-Global Sourcing and Production Sharing-International Orientations
Internationalization Stages and Orientations-Growing Economic Power of Developing
Countries-International Business Decision-Case Studies.

Module 2: International Business Environment: Trading Environment-Commodity Agreements- Castes-

State Trading-Trading Blocks and Growing Intra-Regional Trade- Other Regional
Groupings- SAARC- GATT/WTO and Trade Liberalization-The Uruguay Round
Evaluation-UNCTAI.

Module 3: Multinational Corporations: Definition-Organizational Structures-Dominance of MNC’s- Recent

Trends-Code of Conduct-Multinationals in India-Case Studies

Module 4: India in the Global Setting: India an Emerging Market-India in the Global Trade- Liberalization
and Integration with Global Economy-Obstacles in Globalization-Factors
Favoring Globalization-Globalization Strategies. Trade Policy and Regulation in India:
Trade Strategies-Trade Strategy of India-Export-Import Policy-Regulation and Promotion
of Foreign Trade in India-Case studies.

References:
1. WTO and Indian Economy : Chadha.G.K :
2. International Business : New Trends : G.S.Batra & R.C.Dangwal
3. Global Marketing Strategies : Jean Pierre & H.David Hennessay
Module 1:

Introduction: International Marketing-

Today, the marketing organizations are not restricted to their national

borders. The entire world is open for them. New markets are springing forth
in emerging economies like – China, Indonesia, India, Korea, Mexico, Chile,
Brazil, Argentina, and many other economies all over the world. In today’s
global market opportunities are on a par with the expansion of economies,
with the increasing purchasing power, and with the changing consumer
taste and preferences.

The economic, social, and political changes affect the practice of business
worldwide, the business organizations have to remain flexible enough to
react rapidly to changing global trends to be competitive.

When a company contemplates marketing abroad or expanding existing

international marketing activity, management faces five major decisions:

1.International marketing decision i.e. initial and fundamental decision on

whether or not to market or expand abroad.

2. The market selection decision i.e. determination of which market to

enter.

3. The market entry decision i.e. determination of the most appropriate

methods of entry into those markets, e.g. exporting, licensing,
manufacturing abroad.

4. The Marketing Mix decision i.e. planning and implementing a marketing

mix appropriate to the market environment.

5. The Organization decision i.e. determining the appropriate organization

structures.

Definitions of International Marketing

According to Kotler, “Global marketing is concerned with integrating and

standardizing marketing actions across a number of geographic markets.”
According to Cateora, “International marketing is the performance of
business activities that direct the flow of goods and services to consumers
and users in more than one nation.”

According to Cateora and Graham, “International marketing is the

performance of business activitiesdesigned to plan, price, promote, and
direct the flow of a company’s goods and services to consumers or users in
more than one nation for a profit.”

According to Terpstra and Sorathy, “international marketing consists of

finding and satisfying global customer needs better than the competition,
both domestic and international and of coordinating marketing activities
with in the constraints of the global environment.”

Nature of International Marketing

1. Broader market is available– Unlike domestic marketing the market is

not restricted to national population. Population of other countries can also
be targeted in international marketing.

2. Involves at least two set of uncontrollable variables – In domestic

marketing the marketers have to interact with only one set of uncontrollable
variables. In international marketing at least two set of uncontrollable
variables are involved or more if the marketing organization deals in more
countries.

3. Requires broader competence– Special management skills and broader

competence is required in international marketing/business.

4. Competition is intense – An international marketing organization has to

compete with both the domestic competitors and the international
competitors. Hence, the competition is intense in international marketing.

5. Involve high risk and challenges – International marketing is prove to

various kinds of risk and challenge like – political risk, cultural differences,
changes in fashion and style of foreign customers, sudden war, changes in
government rules and regulations, communication challenges due to
language and cultural barriers, etc.
Scope of International Marketing

International Marketing constitutes the following areas of business:

1. Exports and Imports

International trade can be a good beginning to venture into international

marketing. By developing international markets for domestically produced
goods and services a company can reduce the risk of operating
internationally, gain adequate experience and then go on to set up
manufacturing and marketing facilities abroad.

2. Contractual Agreements

Patent licensing, turn key operations, co – production, technical and

managerial know – how and licensing agreements are all a part of
international marketing. Licensing includes a number of contractual
agreements whereby intangible assets such as patents, trade secrets, know –
how, trade marks and brand names are made available to foreign firms in
return for a fee.

3. Joint Ventures

A form of collaborative association for a considerable period is known as

joint venture. A joint venture comes into existence when a foreign investor
acquires interest in a local company and vice versa or when overseas and
local firms jointly form a new firm. In countries where fully owned firms are
not allowed to operate, joint venture is the alternative.

4. Wholly owned manufacturing

A company with long term interest in a foreign market may establish fully
owned manufacturing facilities. Factors like trade barriers, cost differences,
government policies etc. encourage the setting up of production facilities in
foreign markets. Manufacturing abroad provides the firm with total control
over quality and production.

5. Contract manufacturing
When a firm enters into a contract with other firm in foreign country to
manufacture assembles the products and retains product marketing with
itself, it is known as contract manufacturing. Contract manufacturing has
important advantages such as low risk, low cost and easy exit.

6. Management contracting

Under a management contract the supplier brings a package of skills that

will provide an integrated service to the client without incurring the risk and
benefit of ownership.

7. Third country location

When there is no commercial transactions between two countries due to

various reasons, firm which wants to enter into the market of another
nation, will have to operate from a third country base. For instance,
Taiwan’s entry into china through bases in Hong Kong.

8. Mergers and Acquisitions

Mergers and Acquisitions provide access to markets, distribution network,

new technology and patent rights. It also reduces the level of competition
for firms which either merge or acquires.

9. Strategic alliances

A firm is able to improve the long term competitive advantage by forming a

strategic alliance with its competitors. The objective of a strategic alliance is
to leverage critical capabilities, increase the flow of innovation and increase
flexibility in responding to market and technological changes. Strategic
alliance differs according to purpose and structure. On the basis of purpose,
strategic alliance can be classified as follows:

Technology developed alliances like research consortia, simultaneous

engineering agreements, licensing or joint development agreements.
Marketing, sales and services alliances in which a company makes use of the
marketing infrastructure of another company in the foreign market for its
products.
Multiple activity alliance involves the combining of two or more types of
alliances. For instance technology development and operations alliances are
generally multi- country alliances.
On the basis of structure, strategic alliance can be equity based or non
equity based. Technology transfer agreements, licensing agreements,
marketing agreements are non equity based strategic alliances.

10. Counter trade

Counter trade is a form of international trade in which export and import

transactions are directly interlinked i.e. import of goods are paid by export
of goods. It is therefore a form of barter between countries. Counter trade
strategy is generally used by UDCs to increase their exports. However, it is
also used by MNCs to enter foreign markets. For instance, PepsiCo’s entry
in the former USSR. There are different forms of counter trade such as
barter, buy back, compensation deal and counter purchase. In case of
barter, goods of equal value are directly exchanged without the involvement
of monetary exchange. Under a buy back agreement, the supplier of a plant,
equipment or technology. Payments may be partly made in kind and partly
in cash. In a compensation deal the seller receives a part of the payment in
cash and the rest in kind. In case of a counter purchase agreement the seller
receives the full payment in cash but agrees to spend an equal amount of
money in that country in a given period.

Objectives of International Marketing

To bring countries closer for trading purpose and to encourage large scale
free trade among the countries of the world.
To bring integration of economies of different countries and there by to
facilitate the process of globalization of trade.
To establish trade relations among the nations and thereby to maintain
cordial relations among nations for maintaining world peace.
To facilitates and encourage social and cultural exchange among different
countries of the world.
To provide better life and welfare to people from different countries of the
world. In addition, to provide assistance to countries facing natural
calamities and other emergencies situations.
To provide assistance to developing countries in their economic and
industrial growth and thereby to remove gap between the developed and
developing countries.
To ensure optimum utilization of resources (including surplus production)
at global level.
To encourage world export trade and to provide benefits of the same to
all participating countries.
To offer the benefits of comparative cost advantage to all countries
participating in international marketing.
To keep international trade free and fair to all countries by avoiding trade
barriers.

Components of International Marketing Environment &

importance:

The various components of the international marketing environment are

the major determinants of marketing opportunities. As such, it is the
responsibility of an international firm to have clear grasp of international
marketing environment to formulate effective marketing decisions
regarding Marketing Mix variables.

The International Marketing Environment consists of following

elements:

Economic Environment
Financial Environment
Cultural Environment
Social Environment
Political Environment
Legal Environment
Competition Environment
Technological Environment

1. Economic Environment

The economic environment is comprised of the following economic

variables at least:

a) National Income.

b) Gross Domestic Product (GDP).

c) Industrial Structure.

d) Currency floating (Open/fixed) issue.

e) Demand patterns.

f) Balance of Payment (BOP) status

g) Economy base (Import/Export).

h) Rate of Economic Growth.

i) Occupational Pattern.

j) State of Inflation.

k) Consumer Mobility.

The international marketer tries to understand economic environmental

variables of the global markets for identifying the right marketing
opportunities for the enterprise.

2. Financial Environment

Financial environment refers to the financial system study of a country in

which the international marketer intends to operate. A financial system of a
country refers to the following two variables such as: a) Money Market. b)
Capital Market.

3. Cultural Environment

Culture is everything that people have, think and do as members of the

society. It is the sum total of knowledge, beliefs, arts, morals, laws, customs
and any other capabilities and habits acquired by humans as members of
the society. The environment which is comprised of norms, taboos, religious
sentiments, habits that determines the lifestyle, attitude towards different
goods and buying decisions is regarded as cultural environment.Since
consumer behaviour is highly influenced by cultural environment, a firm
pursuing international marketing must know the cultural differences in
which international efforts are made.

4. Social Environment
Human beings live in a society. A contemporary society is comprised of
various social classes depicting a wide range of values, attitudes and
behaviour.Each class is shown in terms of social status, relative wealth and
prestige. Individuals belonging to a particular class are found to lead their
lives as per the norms and values of the concerned class. Thus social
environment refers to social stratifications of a society and its behavioural
implications. The international marketer intends to provide an insight into
the social environment to know the constituents of a foreign society and to
understand how social classes differ in their buying habits, brand choice
and living patterns.

Research on social environment has come out with the following social
classification and their buying/consumption pattern which are helping
international marketer to decide about their strategy:

a)Upper Class: Consumers belonging to Upper Class serve as a reference

group for others to the extent that their consumption decisions trickle down
and are imitated by other social classes. They constitute a good market for
jewellery, antiques, homes and vacations.

b)Lower Upper Class: This class tends to show patterns of conspicuous

consumption to impress those belonging to less than their social position.
They seek to buy the symbols of status for themselves and their children,
such as, expensive homes, schools, automobiles etc.

c)Upper Middle Class: This class is a quality market for good homes,
clothes, furnitures and appliance. They seek to run gracious home,
entertaining friends and clients.

d)Middle Class: This class constitutes a major market for do it yourself

products. This group is involved in religious activities and tries to avoid
highly styled clothings.

e)Working Class: This class basically aims at meeting salient human needs.
They also strive for security and interested in items that enhanced their
leisure.

f)Upper lower Class: The upper lowers are found to be sports fan, heavy
smokers. In view of their financial conditions, they tend to show interest in
the low priced consumer goods.
g)Lower-lower Class: Individuals belonging to this class usually have broken
down homes, dirty clothes and raggedy possessions.

5. Political Environment

Political environment refers to the variables like below:

a) Stability of Government Policies.

b) Philosophies of the political parties.

c) State of Nationalism.

d) Kinds of Political risks

e) State of bureaucracy.

f) Economic Risks.

g) Attitude toward foreign investment.

6. Legal Environment

An International Marketer intends to provide an insight into international

legal environment to conduct marketing operations in compliance with
international laws, originate from the various sources. Proper
understanding of legal environment may assist an international firm to
handle legal disputes effectively.

Following are some variables which constitute the legal environment:

a) Rules for exporting and importing goods.

b) Rules for People

c) Rules for Services

d) Rules for money across national boundaries.

e) Health regulations

f) Safety Standards

g) Product Packaging and labelling

h) Product Advertising and promotion etc.

International Marketer also needs to understand the legal dispute

settlement process to protect his justifiable interest. We know that legal
disputes can arise in three situations such as:

a) Between Governments

b) Between Company and a Government

c) Between Two Companies.

Dispute between Governments can be settled by the International Courts

but disputes of other two categories must be settled through Arbitration or
in the courts of the country of one of the parties involved in the dispute.

Most International Marketing disputes can be settled by any of the

following three methods:

a) Conciliation

b) Arbitration

c) Litigation

7. Competition Environment
To plan effectively international marketing strategies, the international
marketer should be well-informed about the competitive situation in the
international markets. By Competitive environment we mean the following
variables:

a) Nature of competition

b) Players in the competition

c) Strategical weapons used by the participants

d)Competition regulations

Following are the ways an international marketer can handle competition:

a) Proper knowledge about the competitors

b) Knowledge of Competitor’s objectives

c) Competitor’s strategies

d) Competitor’s reaction patterns

e) Knowledge of Competitors strengths and weakness.

8. Technological Environment

The most dramatic force that shaping the destiny of an international firm is
technological environment. Technological know-how impacts all spheres of
an international marketer’s operations including production, information
system, marketing etc. The international marketers must understand
technological development and its impact on its total operations. The
marketing intelligence system may help the international firm to know
technological orientations of other enterprises and to update it’s own
technologies to remain competitive. Research and Development (R&D) has
a vital role to play in increasing technological ability of a firm.

1.2 Trends in International Trade: In order for any business to

maintain its customer acquisition rate, and to progress in general, it must
follow trends and adapt to new situations. There are new gadgets, online
tools, apps, and platforms that help businesses around the world alter their
approach, cut costs, and also advertise. Being up to date helps you react on
time, and make necessary alterations before your competition and thus
appear unique and more relevant. So, we are going to examine these current
trends in international business that are likely to dominate the year 2018.
This is your chance to start doing things differently before they become old
news and build a higher brand authority in the process.
Since 2010, there has been a massive transformation in the world economy.
And it is outperforming most predictions  —  a trend that Goldman Sachs
Research economists Jan Hatzius and Jari Stehn have listed for 2018.

Global economic growth is being witnessed across most advanced and

emerging economies. The Indian growth story is well documented, with the
economy growing at 7.1% and 6.7% in 2016’s & 2017 respectively. The
growth continues unabated, with The International Monetary Fund
reporting that India will be the fastest-growing economy in 2018, growing at
7.4%.

2018 might just have been flagged off, but it’s never too early to have your
business plan on point. Here are some key global business trends of 2018
that you need to keep an eye on.

1.2.1 Crowd-Funded Projects

One of the major trends in international business is, of course,
crowdfunding. Before, when crowdfunding started, Kickstarter was
probably the most well-known platform for getting your project funded.
Today, there are more online platforms that you can use for this purpose
and this is good because you do not have to rely on one website to get
noticed and to get your project funded.
Crowdfunding is only good if more talented people become visible to
the masses because people are the ones who have a say in which projects
will come to life. Producers will also have immediate feedback on just how
much their idea and products are viable and if the audience is excited about
their project. So, crowdfunding is, in a way, a safe bet, since you do not need
to get into debts in order to try to realize your idea.
The issue that occurred is the lack of platforms for crowdfunding
because if everyone relies on one platform only, it is hard to gain visibility
amidst all of the existing projects there.

1.2.2 Remote Workforce

The remote workforce is another one of global trends affecting international
business. Due to the increased connectivity and more advanced methods of
communication, like video calls, webinars, etc., we are now able to hire
people who do not live on the same continent and pay them online. This is
good for small businesses, because they have a wider talent pool to choose
from, and because they do not have to pay tax returns for the people who
work in a different country.
Online platforms for freelancers are booming because there are capable
people who are interested in getting a job online, and small business
companies who are looking for an accessible and capable workforce that can
be found across the seas.

1.2.3 Outsourcing Administration

In addition to remote workers, there is one of the trends in the international
business that is really similar. Today, you can find entire companies in the
outsourcing business. In other words, instead of hiring someone to do your
tax returns or any other administration work, you can put your faith into the
hands of companies who are experts and have all the necessary tools to
complete those tasks.
This helps you save fund that would go on employing another worker,
and for purchasing the reliable software. Other services that are outsourced
are graphic design for logo, web design, photo editing, and any other task
that is necessary for your online presence, and for establishing your brand
identity. In other words, there are so many demands and global trends
affecting international business that help you stay relevant, but there are
also budget-friendly solutions.

1.2.4 Training Through eLearning

Hiring qualified people or professionals is also one of the issues that small
business owners encounter. In order to expand, you need capable people,
but employing a whole new team of professionals is not something that
comes cheap. As far as current trends in international business go, you can
opt eager cadets who are willing to learn, and use eLearning solutions that
help you train your staff in an efficient and quick manner.
The reason why eLearning is gaining so much popularity is that it
gives its course attendants more flexibility in terms of attendance. Also, they
have more choices regarding how they wish to tackle lessons, so they will
opt for a learning style that corresponds to them, and that allows faster
knowledge acquisition.

1.2.5 Advertising via Live Videos

Social networks have added a new feature called live video stream, which
many people love to use since it is quite engaging. This allows companies to
advertise in a way that gives the users the so-called in-the-moment
experience, which makes them feel more included. Another advantage of
live video streaming is Q&A videos which allow each viewer to participate in
the show and help brand ambassadors bond with the user base, which in
turn creates better brand loyalty.

1.2.6 More Augmented Reality (“AR”) and Virtual Reality (“VR”)

Marketing and Shopping Finally, we all remember what was the main event
in the year 2016, the app, or the video game called Pokémon Go. The
outright success of this App demonstrated showed that the world embraces
augmented reality experiences, which opens up more doors for creative
approaches to marketing.

Also, there are VR video games and apps which utilize the new gadget.
There are bound to be some marketing campaigns that will target these
users because some of the stores have already started by developing apps
that use VR to help users experience the virtual version of their store, and
shop there. This type of immersive content is what users crave, and they
love when providers create a more engaging and fun shopping experience by
using current technologies. The reason why virtual shops are popular is that
shoppers who live across the seas cannot access them and experience their
interior while shopping.

1.2.7 #MeToo and gender inclusivity

Gender inclusivity and equality are in sharp focus right now. With
the #MeToo movement stepping in, the global workforce scenario
demands ethical work behaviour for both the sexes. Companies will
deploy new work methodologies to ensure a secure flow of practices
on premises while keeping the needs of women and men on par.

Conclusion
These were some of the interesting trends that will impact international
business in 2018. While it will impact companies in different ways,
understanding these macro-level trends can provide some insights into
where you should move and where you can create a new company presence
to take advantage of the changes in business and consumer preferences.

Source: economic times global summit

1.3 Reasons for Going International: 8 Reasons Why Companies Go Global

are
Traditionally many companies have stayed focused in their domestic
markets and have refrained from competing globally. They know their
domestic markets better and understand that they have to make
fundamental changes in the way they work to be able to compete globally.
But increasingly companies are choosing or are being forced to sell
their products in markets other than their domestic markets. It has become
imperative for most companies to compete in foreign markets.

1. Domestic Market Saturated: Domestic markets are saturated and there is

pressure to raise sales and profits. Most companies have very ambitious
sales and profit targets. If such figures have to be realized, companies have
to move out of their domestic markets.
2. Domestic Market Small:Domestic markets are small. Companies which
have ambitions to become big will have to look for bigger markets outside
their boundaries.
3. Slow Growth of Domestic Market:Domestic markets are growing slowly.
Most companies are no longer content to grow incrementally. If such
companies have to achieve high growth rates, they have to obtain some of
their sales from international markets.
4. Suppliers follow their Customers Internationally:In some industries
like advertising, customers want their suppliers to have international
presence so that suppliers can contribute in most of the markets where
the buyer is operating. For instance, a multinational will choose an
advertising agency which has a presence in all the markets where the
multinational is selling its product. The customer does not want the
hassle of hiring a separate advertising agency for each of its markets.
This process will be replicated in more industries.A multinational
company seeking materials and equipment’s would want its supplier to
supply to all its international manufacturing locations. The supplier is
forced to develop competencies and resources at many international
locations to be able to serve the international manufacturing locations
of its buyer.

5. Competitive Pressures: Some companies will have to move out of their

domestic markets when their competitors have done so, if they want to
maintain their market share. If the competitor is allowed to pursue its
international growth alone, the competitor is likely to plough back some of
the earnings from its international operations to the domestic market,
making it difficult for the companies which refrained from pursuing
international markets, to focus on the domestic market. In other cases, a
domestic player would start operations in the home country of its global
competitor, to divert the attention and resources of its competitor towards
operations at home to safeguard its home market.

6. Attractive Cost Structures Globally: Developed markets have high cost

structures and companies may move their operations to regions and
countries where costs of production are lower. Once a company starts
operating in a geographical region, it becomes easier and profitable to
market their products in that area.
7. Growth Rate and Potential: Countries and regions are at different
stages of development, and their growth rates and potential are
different. Companies do not like to concentrate all their efforts in
limited regions and want to spread out their risk. Such companies will
look for markets which are likely to behave differently from their
existing ones in terms of economic parameters like growth rate, size,
affluence of customers, stage of market development, etc.A company
would not like all its markets to be under recession or inflation
simultaneously, and would not like all its markets to be in mature
stage, or in growth stage. Having different type of markets will make
revenues and profits more consistent. The investment requirements
would also be more balanced.

8. Compete Successfully in Domestic Market:Even if a company decides to

concentrate on its domestic market, it will not be allowed to pursue its goals
unhindered. Multinational companies will enter its market and make a dent
in its market share and profit. The company has no choice but to enter
foreign markets to maintain its market share and growth.

-Global Sourcing and Production Sharing

Meaning: A procurement strategy in which a business seeks to

find the most cost efficient location for manufacturing a product,
even if the location is in a foreign country. For example, if a toy
manufacturer finds that manufacturing and delivery costs are
lower in a foreign country due to lower wages of foreign
employees, the company might close the domestic factory and
use a foreign manufacturer.
Source: www.businessdictionary.com-

Global product sourcing refers to a procurement strategy through which an

enterprise works to identify the most cost-effective location for product
manufacturing, even if that location may be in a foreign country.

For instance, a cement manufacturing company may find that the costs of
raw materials and manufacturing are lower in some foreign country because
manpower is cheaper there. The company would therefore opt to shut down
its domestic operations and set up a plant in that foreign country.

The general sourcing process can be divided into the following 5 stages,
explained below.

Stage 1: Preliminary Research – Investigation and Tendering

At this stage, the enterprise identifies the core and non-core operational
activities, analyzes customer and market requirements and identifies
competitors. The idea is to develop the firm’s business objectives,
prospective markets and brand positioning.

The strategic sourcing scope is also outlined through a business plan

developed by the executive and the sourcing specialist, and the preliminary
work strategy and baseline for measuring performance is established and
documented as a procurement process plan.

Stage 2: Market and Supplier Evaluation

At this stage, the enterprise develops a detailed list of supplier selection
benchmarks, which is used to select the most appropriate suppliers that fit
the requirements. Based on the findings of the process, the sourcing
strategy may be tweaked further and a final costing model is released. The
operational and economic benefits of the project will then be estimated.
RFIs will then be sent out to the shortlisted suppliers.

Stage 3: Selection of the Supplier (Sourcing Event)

Based on the results of the RFI dispatch, a final list of suppliers is selected
and negotiation for products is carried out, culminating in a supply
agreement. Technical assessment of final supply candidates is conducted to
come up with the savings estimates for each. Finally, an implementation
schedule outlining timelines for various suppliers is developed.

Stage 4: Implementation
A performance analysis schedule should be developed, outlining all
activities in the implementation process. The implementation team should
be constituted by the procurement agent and the schedule and strategy
should be published. Agreements related to shared supply, resources and
logistical arrangements are developed.

At this stage, expected internal and external results from the suppliers
should be documented. Periodic measurement and reporting of actual
performance should be carried out.

Stage 5: Performance Monitoring

Performance of suppliers is measured, both independently and in relation to
the resources and processes applied by supply partners. This should be
carried out routinely and reported accordingly. In-depth evaluation of the
efficacy of collaborative efforts with each supplier is obtained, and the
partners involved continuously isolate problems and find out ways these can
be solved for improved performance.

The objective of performance monitoring is to maintain the most efficient

procurement process, one that is flexible and dynamic, easily adapting to a
changing market environment.
A Good Global Sourcing Strategy Addresses
Cost – the main purpose of product sourcing strategy is to take advantage
of lower labor costs in foreign countries. However, the procuring
organization will face additional costs that don’t factor into domestic
transactional costs. These include broker fees, freight charges, taxes called,
insurance, duties and bank fees.
Laws – the sourcing specialist together with the supplier should consider
what body of law shall be applied to their contractual agreement, i.e., the
buyer’s country’s law, the supplier’s country’s law or the law applicable
through a signed treaty between the 2 countries.
Currency – some buyers may insist on transactions in their own currency
for the sake of simplicity. However, a prudent buyer will consider the
possibility of using the supplier’s currency where the buying country’s
currency may become stronger in the period between agreement and supply
and eventual payment.
Lead time – global purchases have a significantly longer lead time than
domestic sources. The reason is that overseas travel is slower, unless air
travel is used. In addition, there is time taken in the custom clearance
process, which does not apply for domestic sources.
Culture and language – where the procurement agent is unfamiliar with the
culture and language of the supplier, the risks of misunderstanding,
miscommunication and offensive/awkward encounters significantly
increases.
Transportation – whereas domestic sourcing necessitates the use of a
single mode of transportation, global sourcing frequently includes multiple
modes of transport, e.g., combining air or water transportation with road
transport to bring goods from the supplier to the supplier’s port, to your
own port and finally to your place of business.
Methods of payment – in global sourcing, a letter of credit is used for
payment, which necessitates the cooperation of the banks of the supplier
and buyer.

Global Sourcing Issues

• A third problem companies face in global sourcing is communication.
Many times there are delays and confusion in translations.
• Sending documents via couriers or the postal service is often time
consuming and creates problems of obsolescence, more confusion, and late
or even lost deliveries.
• There has been an increase in the use of the Internet to eliminate the time
delay and confusion.
• Global sourcing is the trend of the future.
• Supply management is becoming very important to the survival of both
American and offshore firms.
• In certain industries, using foreign suppliers can reduce total costs.
• Firms in the apparel and electronics industries that do not use global
sourcing could find themselves out of business when competing with firms
that source globally.
• Global sourcing is by no way expanded to completely replace domestic
sources; however, it is a way to meet a competitor’s challenge and achieve
better value for goods all over the world.

Production sharing:

An agreement to share the production or extraction costs

between two governments, a government and a corporation, or a
corporation and an individual. This can be accomplished when
two countries agree to allow certain raw materials to be shipped
tariff free from the first country to the second country where the
materials are manufactured into a finished product. That
product is then shipped back, tariff free, to the original country.
In oil or mineral extraction, the company doing the extraction is
paid in oil or minerals as compensation for business costs as well
as a share of the profit.

Production sharing is defined as trade in intermediate goods that are part of

vertically integrated production networks that cross international borders.
Communications and transportation technology has evolved to the point
that firms find it both feasible and profitable to slice up the production
chain into separate parts or stages that can be performed in different
locations according to region- or country-specific comparative advantage.

Internationalization Stages and Orientations:

Internationalization stages:
1. Domestic Company stages

Market potential is limited to the home country. Production and marketing

facilities are located at home only. Surplus may or may not be exported.
There are no overt efforts to develop foreign markets. It may add new
product lines, serve new local markets but whole planning is limited to
national markets only.

Features:

i. Their focus remains with domestic market.

ii. Their productions facilities remain based in home country.Their analysis

is focused on the national market.

iii. They do not think globally and avoid taking risk in going global.

iv. Their top management may have traditional kind of business

management competency and less global expertise.

v. They perceive that there is risk in expanding into global market and thus
they try to play safe and satisfied with whatever gains they are getting in
domestic market.

2. International Company
Some ambitious efficient domestic companies after going beyond their
domestic marketing capacities start thinking of expanding their operations
in International Markets.The main strategies for entering international
market is:
a) Off-shoring/global outsourcing (seeking cheaper source of raw material
or labour)
b) Exporting
c) Licensing
d) Franchising
e) Joint Ventures/Acquisitions
f) Direct Investments
Even though they think of international markets, still they are of
ethnocentric or domestic oriented. These companies adopt the strategy of
locating the branches of their companies in other countries and practice the
same domestic operations in foreign markets,including the same
promotion, price, product etc. policies.

Features:

i. Focus on going beyond,domestic

ii. Their management remains ethnocentric with a vision to expand

internationally.They extend their domestic products,domestic prices and
other business practices to foreign countries.

iii. They keep their marketing mix constant and extend their operations to
new countries.

iv. Their management style remains centralized for their home nation and
extended top down to the overseas market country.

3. Multinational Company

After sometime, international companies realize that the domestic model

and practices adopted through extension policies do not serve the purpose.
The foreign customers may not prefer the products that are sold in domestic
market. Hence, these companies respond to the needs of different
customers in different countries and produce such goods and services that
will satisfy them.

Features:

i. Companies when they spread their wings to more nations become

multinational companies.

ii. Sooner or later they realize that they have to change their marketing mix
according to the foreign market.

iii. This can also be termed as multi domestic,in which different strategies
are adopted for different market.
iv. The management of such companies remains decentralized and even
production may be in the host country.

v. Performance evaluation is done at different host countries.

4. Global

The global company adopts global strategy for marketing its products.It
may produce either in the home country or in any other single country and
market its products throughout the world.It may also produce the products
globally and market them domestically.

Features:

i. Such companies have a global marketing strategy.

ii. They either produce in home country or in a single country and focus
marketing globally.

iii. They adapt to the market conditions according to the foreign market.

iv. Their performance evaluation is done worldwide.

5. Transactional Company

Transactional Company operates at the global level by way of utilizing

global resources to serve the global markets. It has geocentric orientation
and has integrated network.Its key assets are dispersed and every sub-unit
of the company contributes towards achievement of the company objectives.
It produces best quality raw materials from the cheapest source in the
world,process them in the country wherever it is economical and sells the
finished products in those markets where prices are favourable.

Feature:

i. Transnational companies have a geocentric approach,which means they

think globally and act locally.

ii. Transnational companies collect information worldwide and scan it for

use beyond geographical boundaries.
iii. The vision of such to grow more in a global way.

iv. The R&D,management,product development are shared worldwide.

v. Their human resources procurement and development remains globally.

Orientations in International Business

1. ETHNOCENTRIC ORIENTATION:
The ethnocentric orientation of a firm considers that the products,
marketing strategies and techniques applicable in the home market are
equally so in the overseas market as well. In such a firm, all foreign
marketing operations are planned and carried out from home base, with
little or no difference in product formulation and specifications, pricing
strategy, distribution and promotion measures between home and overseas
markets. The firm generally depends on its foreign agents and export-
import merchants for its export sales.
2. REGIOCENTRIC ORIENTATION :
In regiocentric approach, the firm accepts a regional marketing policy
covering a group of countries which have comparable market
characteristics. The operational strategies are formulated on the basis of the
entire region rather than individual countries. The production and
distribution facilities are created to serve the whole region with effective
economy on operation, close control and co-ordination.
3. GEOCENTRIC ORIENTATION :
In geocentric orientation, the firms accept a world wide approach to
marketing and its operations become global. In global enterprise, the
management establishes manufacturing and processing facilities around the
world in order to serve the various regional and national markets through a
complicated but well co-ordinate system of distribution network. There are
similarities between geocentric and regiocentric approaches in the
international market except that the geocentric approach calls for a much
greater scale of operation.
4. POLYCENTRIC OPERATION :
When a firm adopts polycentric approach to overseas markets, it attempts
to organize its international marketing activities on a country to country
basis. Each country is treated as a separate entity and individual strategies
are worked out accordingly. Local assembly or production facilities and
marketing organisations are created for serving market needs in each
country. Polycentric orientation could be most suitable for firms seriously
committed to international marketing and have its resources for investing
abroad for fuller and long-term penetration into chosen markets.
Polycentric approach works better among countries which have significant
economic, political and cultural differences and performance of these tasks
are free from the problems created primarily by the environmental factors.-

Growing Economic Power of Developing Countries

Economic Growth is a narrower concept than economic development. It is

an increase in a country's real level of national output which can be caused
by an increase in the quality of resources (by education etc.), increase in the
quantity of resources & improvements in technology or in another way
an increase in the value of goods and services produced by every sector of
the economy. Economic Growth can be measured by an increase in a
country's GDP (gross domestic product).
Economic development is a normative concept i.e. it applies in the context
of people's sense of morality (right and wrong, good and bad). The
definition of economic development given by Michael Todaro is an increase
in living standards, improvement in self-esteem needs and freedom from
oppression as well as a greater choice. The most accurate method of
measuring development is the Human Development Index which takes into
account the literacy rates & life expectancy which affects productivity and
could lead to Economic Growth. It also leads to the creation of more
opportunities in the sectors of education, healthcare, employment and the
conservation of the environment. It implies an increase in the per capita
income of every citizen.

The economic level of a country is the single most important environmental

element to which the foreign marketer task. The stage of economic growth
within a country affects the attitudes toward foreign business activity, the
demand for goods, the distribution systems found within a country, and the
entire marketing process. In static economies consumption patterns become
rigid and marketing is typically nothing more than a supply effort. In a
dynamic economy, consumption patterns change rapidly. Marketing is
constantly faced with the challenge of detecting and providing for new levels
of consumption and marketing efforts must be matched with ever changing
market needs and wants.
Economic development presents a two sided challenge. First, a study of the
general aspects of economic development is necessary to gain empathy
regarding the economic climate within developing countries. Second, the
state of economic development must be studied with respect to market
potential, including the present economic level and the company’s growth
potential. The current level of economic development dictates the kind and
degree of market potential that exists, while knowledge of the dynamism of
the economy allows the marketer to prepare for economic shifts and
emerging markets.

Economic development is generally understood to mean an increase in

national production that result in an increase in the average per capita gross
domestic product (GDP). Besides an increase in average per capita GDP
most interpretations of the concept also imply a widespread distribution of
the increased income. Economic development, as commonly defined today,
tends to mean rapid economic growth and increases in consumer demand –
improvements achieved in decades rather than centuries.

GROWTH AND DEVELOPMENT: A CONTRAST IN CONCEPTS

Economic development is a broader term than economic growth Economic
growth usually means the growth in production of an economy. On the
other hand, Economic development includes other factors such as literacy
health, child mortality Rate, equality, regional balance, infrastructure, etc.
Let us take the example of a child. As a child grows her weight and height
increases. Simultaneously, her capacity to learn, recognize and distinguish
between objects develops. Thus growth is not sufficient; we need
development also. Similarly, in the case of the Indian economy economic
growth is not enough; we need economic development. We need better
health of people, education for all, reduction in inequality among sections of
people and regions, reduction in infant mortality rate (IMR), access to
drinking water for all, etc. The government has to devise policies and
allocate government expenditure so that these facilities are available to all.
Thus the additional income generated in the economy reaches the backward
regions and the poorer sections of society. To achieve economic
development we need economic growth. In a stagnant economy, where
there is no economic growth, realization of economic development is
difficult.
Economic growth refers to increase over time in a country’s real output of
goods and services or more appropriately production per capita .The
economic development ,in contrast is more comprehensive. It implies
progressive changes in the socio-economic structure of a country. Viewed in
this way economic development involves a steady decline in agriculture’s
share in GNP and a corresponding increase in the share of industries, trade,
banking, construction and services. Thus the economic growth signifies only
the rise in real national income and per capita income whereas, the
Term economic development signifies the rise in real national income and
per capita incomes along with the following structural changes in the
economy-
1-Changing occupational structure: The process of economic development is
accompanied by the flight of labor from primary to secondary and tertiary
sectors.
2-Changing sectoral structure of national income: In the course of economic
development, the relative contributions of secondary and tertiary sectors in
the generation of rise in national income.
3-Changing structure of industrial production: The process of economic
development involves industrialization .according to Haffman, as the
economy develops the ratio of production of capital goods to consumer
goods rises.
4-Changing structure of foreign trade: The development process leads to
increasing consumption of raw-material in the growing manufacturing
industries.
5-Technological progress and innovations: The traditional techniques of
productions gradually give way to science based highly automated
techniques .The increasing proportion of GNP is devoted to R&D.

DETERMINANTS OF ECONOMIC DEVELOPMENT -

The process of economic development is a highly complex
phenomenon and is influenced by numerous and varied factors such as
political, social and cultural factors. According to prof.R. Nurkse’Economic
development has much to do with human endowments, social attitudes,
political condition and historical accidents .capital is necessary but not a
sufficient condition of progress. The supply of natural resources, the growth
of scientific and technological knowledge etc. have a strong bearing on the
process of economic growth.

1. Economic determinants:
The three most important factors determining the rate of economic
development are:
a-Capital formation
b-Capital output ratio
c-The rate of population growth
a) Capital formation: Capital accumulation is the very core of economic
development. It is quite necessary to step up the rate of capital formation so
that the community accumulates a large stock of machines, tools, and
equipment which can be geared into production. The process of building up
the necessary stock of capital equipments requires huge resources for
financing it. Either a large part of national income must be saved for
production of capital goods or the necessary funds for the purpose may be
borrowed from abroad.

b) Capital output ratio: The term capital output ratio refers to the number of
units of capital that are required in order to produce one unit of output. It is
difficult to estimate the capital –output ratio for an economy. the
productivity of capital depends upon many factors such as degree of
technological development associated with capital investment,
the efficiency of handling new types of equipments ,the quality of
managerial and organizational skills, the pattern of investment and the
existence and the extend of the utilization of economic overheads.

c) Rate of population growth: Rapid growth of population is considered to

be important determinants of growth. In terms of per capita income, on
account of rise in population, the country experiences a very thin spread of
the benefits of growth. This highlights the need or a large and active
programmed of family limitation so that the benefits of the massive
development are not dissipated.

2. Non-economic determinants
a-social and cultural factors
B-political factors
C-adverse international efforts

a) Social and cultural factors: These factors are no less important and are
very extensive in scope. Each society has certain institutions which have a
strong bearing an economic development. In India for Example , the
institutions of caste, joint families , non-materialistic attitude of the people ,
and their fatalism based on the philosophy of karma have been some of the
serious impediments to economic development .naturally the various
relevant social and cultural factors will have to be suitably adopted before
the tempo of economic development can be expected to quicken.
b) Political factors: In addition to the economic and social factors there are
also the political factors which retard economic growth .For example during
the British regime, the government promoted British interests at the
expenses of Indian interest’s .After independence two things did not
improve dishonest and corruption. Favoritism, nepotism, and corruption
were rampant all over the country. The people too lacked sense of the duty
and devotion to the country and were trying to enrich themselves at the
expense of the country.

c) Adverse international factors: Economic relations with the advanced

countries have also kept the under-developed countries in a state of under
development. Developing countries are not exposed to the beneficial effects
of foreign trade in terms of economic development. Developing countries
are often exposed to the cyclical effects of foreign trade which results in
instability and impede economic growth.

FACTORS AFFECTING ECONOMIC DEVELPOMENT

It depends on two sets of factors economic and non-economic.

A) Economic factors in economic development

1. Capital formation: It is now universally admitted that a country which

wants to accelerate the pace of growth, has no choice but to save a high ratio
of its income with the objective of raising the level of investment.
Economists rightly assert that due to lack of capital formation no
development plan will succeed unless adequate supply of capital is
forthcoming.

2. Marketable surplus of agriculture: Increase in agricultural production

accompanied by a rise in its productivity is important from the point of view
of the development of a country, with the development of an economy, the
ratio of the urban population increases and increasing demands are made
agriculture for food grains. These demands must be met adequately;
otherwise the consequent scarcity of food in urban areas will arrest growth.

3. Conditions in foreign trade: Foreign trade has proved to be beneficial to

countries which have been able to set up industries in a relatively short
period. These countries sooner or later capture international markets for
their industrial products. Therefore the developing country should attempt
to push the development of its industries to such a high level that in the
course of the time manufactured goods replace the primary products of the
country principal exports.

4. Economic system: The economic system and the historical settings of a

country also decide the developmental prospects to a great extent. There
was a time when a country could have a laizse faire economy and yet face no
difficulty in making economic progress .the third world countries of the
present times will have to find their own path of development only by
adopting capitalism or socialism.

B) Non-economic factors in economic development

1. Human resources: Economist often see population as an obstacle to

growth rather than as a factor which assist the developmental activity
.nevertheless, man makes positive contribution to growth. Man provides
labor is efficient and skilled; its capacity to contribute to economic growth
will decidedly be high.

2. Technical knowledge: As the scientific and technological knowledge

advances, man discovers more sophisticated techniques of production
which steadily raise the productivity levels. If a country in modern times
neglects this activity, it will have to pay a heavy price in terms of industrial
under development.

3.Political freedom: We all know that the under development of India

,Pakistan, Bangladesh, Sri Lanka and a few other countries, which were in
the past British colonies, was linked with the development of England .
England recklessly exploited them and appropriated a large portion of the
economic surplus. This made a significant contribution to British’s
economic development .hence political freedom is an essential condition for
the economic development of a country.

4. Social organization: Under the circumstance, it is futile to hope that

masses will participate in the development projects undertaken by the state.

5. Corruption: Until and unless there countries root out corruption in their
administrative system, it is most natural that the capitalists, traders, and
powerful economic classes will continue to exploit natural resources in their
personal interests.
6. Desire to develop: The pace of economic growth in any country depends
to a great extend on people’s desire to develop. If in some country level of
growth consciousness is low and the general mass of people has accepted
poverty as its fate, then there will be little hope for development of the
nation.

-International Business Decision-Case Studies.