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
PullFactors 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

ETHNOCENTRIC POLYCENTRIC GEOCENTRIC

(Home Country (Each host REGIOCENTRIC (world view,
is superior, country is (sees sees
sees unique, sees similarities and similarities and
similarities in differences in differences in differences in
foreign foreign world region ) home and host
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, Business With in the
Franchising , and trade country
in services etc.
Benefits Both Nations and Firms Lesser benefit compared
to IB
Market Have wide market, can Have face some losses
Fluctuations diversify the risk
Political relations IB Improves the Does not Improve
political relations of the
nations
Purvey (Deals in) Follow IB Procedures No restrictions for
like Customs and Tariff Domestic business
etc
Sharing of Sharing of latest Does not share, only
technology technology adopt
Trade Restrictions Trade Practices, Govt. Very few restrictions
Globalization
Globalizationrefers 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

Globalizati Globalizati Globalizati Globalizati

on of on of on of on 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 companys
international marketing activities.
A Govt. controls and restricts a
companys 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

Democracy
Individualism and
and totalitarianis
collectivism m
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

Work
Social
Motivatio
Structure
n
Culture
norms
& value
System
s
Educatio Public
n& Policy &
language laws

Individua
l&
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 The removal of
economic policy of restrictions on the
restraining trade between free trade of goods
states through methods between countries
such as tariff, quotas and
other measures
Techniques Tariffs, quotas, subsidies, Removal of trade
local content requirement, barriers
etc
Reasons / Is to encourage domestic Encourages the
motive industry International
business
Complianc Domestic Rules and Consider the rules
e to Regulations have to be and regulations of
internation compiled with foreign country with
al rules which it is trading
and
Contd.
Basis Protection Liberalization
Pre Considering the culture Carefully observe
requirement of domestic industry and understand a
and economy countrys culture
before trading with
it
Advantages Protects Domestic It can help to lower
industry, encourages prices and wide
employment and growth range of quality
opportunities in home goods and services
country
Disadvantages It reduces overall Unsustainable
volume of world trade, utilization of
low global income, resources, affects
employment the domestic
opportunity, and less industries
variety of goods