1

International Business
Dr.Biswo Ranjan Mishra
Assistant Professor& Head(Commerce)
DDCE,Utkal University

2
 International Business
• International Business means carrying business
activities beyond national boundaries.
• It refers to business activities, performance of
trade and investment activities of companies
across national borders between two or more
nations. There fore it also refers to cross border
business.
• It is a broader term. It involves cross border
transactions of goods, services, resources, and
processes.
3
International Business Approaches
Douglas Wind and Pelmutter advocated four
approaches of international business:
• Ethnocentric Approach
• Polycentric Approach
• Regiocentric Approach
• Geocentric Approach

4
 Ethnocentric Approach
• Maintenance of domestic approach towards IB is
called ethnocentric approach.
• Domestic companies formulate their strategies
towards national market, customer and
competition.
• If they have excessive production they export it.
• They view foreign market an extension of
domestic market.
• Suitable-Early days of internationalization and
also for small companies.

5
 Polycentric Approach
• Basic philosophy :Foreign market need an altogether
different approach.
• This approach focuses on the condition of the host
country in policy formulation, strategy implementation
and operations.
• Company establishes a foreign subsidiary company and
decentralizes all operations.
• Company appoints the key personnel from home
country and all other vacancies from host country.
• The executives of subsidiary company formulate
policies based on host country’s environment.
(culture,custom,law,govt policies etc)
6
 Regiocentric Approach
• Companies after operating successfully in a
foreign country, thinks of exporting it to the
neighbouring countries of the host country.
• Here the foreign subsidiary considers the
regional environment for formulating policies
and strategies.
• Here more or less same product is designed
for the region but with different market
strategies.

7
 Geocentric Approach
• Basic Philosophy-Entire world is just like a single
country for the company,
• They select employee from the entire globe and
operate with a number of subsidiaries.
• The HQ coordinate the activities of subsidiaries.
• Each subsidiary function like an independent and
autonomous company in formulating policies,
strategies, product design, human resource
policies, operations etc.
8
 Stages of Internationalization
• Scenario 1:Domestic Company
• Scenario 2:International Company
• Scenario 3:Multinational Company
• Scenario 4:Global Company
• Scenario 5:Transnational Company

9
 Scenario1:Domestic Company
• Limits its operation,mission,and vision to the
national political boundaries.
• It focuses its view on domestic market
opportunities, domestic suppliers, domestic
financial companies, domestic customers etc.
• They never think of growing globally.
• If it goes beyond the present capacity the
company select diversification strategy.

10
 Scenario2:International Company
• The focus of these companies is domestic but
extends the wings to foreign countries.
• They locate a branch in foreign markets and
extends the same domestic operations to
foreign market.
• So international company extends the
domestic country marketing mix and business
model and practices to foreign countries.
• They follow ethnocentric approach.
11
Scenario 3:Multinational Company
• The international company turns in to
multinational companies when they start
responding to specific needs of different
country markets regarding product, price and
promotion.
• It is also called multi domestic company.
• They formulate different strategies for
different market.
• Hence the orientation is polycentric approach.
12
 Scenario 4:Global Company
• A global company is one which has either
global marketing strategy or global production
strategy.
• Case1:Global company produces in home
country and focuses on marketing these
products globally.
• Case2:Global Company produces the product
globally and focuses on marketing these
domestically.

13
 Scenario5:Transnational Company
• It is an integrated global enterprise that links
global resources with global markets at profit.
• Transnational companies produces, markets,
invests and operates across the world.
• The important characteristics of a
transnational company is as follows:

14
 Characteristics of TNC
• Geocentric orientation(Think globally but act
locally)
• Scanning or Information acquisition(World wide
political, social,cultural,economic information)
• Vision(Global-Global market, global customers)
• Operating Style(Key operations are globalised)
• Adaptation Change the strategies in tune with
environmental factors(Mercedes Benz)
• Purchasing(World class material from best source
across globe)

15
 Objectives of internationalization
• To achieve higher rate of profit(HP, Apple ,Dell )
• Expansion of Top line(Japanese automobile &
electronic firms)
• Specialization by resources
(Genpact, Vedanta, Mittal)
• Diversification-To reduce risk
• Getting competitive advantage over competitors
• Minimize Competitive risk

16
 Advantages/Significance/Merits of IB
• Wider Market:-(IB widens the market and
increases the market size. Companies need not
depend on the demand for the product in a single
country or customer’s taste fashion in a single
country)
• Reduced Effect of Business cycle:-(Stages of
business cycle vary from country to country.MNC
can shift focus of their business from a country
experiencing recession to a country experiencing
boom condition)
 -----Competitive Advantages
• Reduced Risk: Both commercial and political
risks are reduced for the companies engaged
in international business due to spread in
different countries.
• Large Scale Economies:(MNCs due to wider
and larger market produce large quantities,
which provide benefits of large scale
economies like reduced cost of production,
availability of expertise, quality etc)
 -----Competitive Advantages
• Potential Untapped Market:(IB provides the
chance of exploring and exploiting the
potential markets which are untapped so far)
• Provides opportunity to domestic business :
(International business firms provide
opportunities to the domestic companies.
These opportunities include technology,
management expertise, market intelligence,
product development etc)
 -----Competitive Advantages
• Division of Labor and Specialization:(IB leads
to division of labor and specialization.
Example: Brazil-Cofee , Kenya-Tea, Japan-
Automobiles & Electronics, India-Textiles etc)
• Economic Growth of the world:(Specialization
and division of labor leads to overall economic
development of the world. It also leads to
innovation and creation to meet the
competition)
 -----Competitive Advantages
• Optimum Utilization of World Resources:(IB
provides for the flow of raw materials, natural
resources and human resources from the
countries where there are excess in supply to
those countries which are in short supply. This
in turn helps in optimum use of world
resources)
 -----Competitive Advantages
• Cultural Transformation: There occurs a close
cultural transformation and integration due to
IB.Good cultural values of the east are
acquired by the west and vice-versa.
• Knitting the world in to a closely interactive
traditional village: IB ultimately knits the
global economies, societies and countries in to
a closely interactive and traditional village
where –one is for all and all is for one.
 Problems of International Business--
• Political Factors:-Political instability is the
major factor that discourages the spread of
international business.(Iraq-Iran war, Iraq-
Kuwait war, Dismantling of USSR, Civil war in
Fiji,Srilankan civil war etc)
• Huge Foreign Indebtedness:MNCs hesitate to
invest in those economies where there is huge
foreign indebtness. Example-Mexico,Poland,
Romania,Kenya,Congo,Indonesea.
----Problems of International Business
• Exchange instability: Currency fluctuations
discourages the growth of international
business. Currencies of the countries are
depreciated due to imbalance in BOP, political
instability, and foreign indebtedness etc.
• Entry Requirements: Domestic governments
impose entry requirements to MNCs.
Example-Entry through JV, Franchising,Cap on
FDI etc.
----Problems of International Business
• Tariff, Quotas and Trade Barriers-Government of
various countries impose tariffs, import and
export quotas and other trade barriers in order to
protect domestic business. These barriers are
imposed based on the political and diplomatic
relations between or among governments.
• Corruption: The higher rate of bribes and
kickbacks discourage the foreign investors to
expand their operations.
----Problems of International Business
• Bureaucratic Practices of Government:
Bureaucratic attitudes and practices of
Government delay sanctions, granting
permission and licenses to foreign companies.
• Technological Pirating: Copying the original
technology, producing imitative products etc is
common in some countries. This practice
invariably alarms the foreign companies
against expansion.
----Problems of International Business
• Quality Maintenance: International business
firms have to meticulously maintain quality of the
product based on quality norms of each country.
The firms have to face severe consequences, if,
they fail to confirm the country standards.
• High Cost: Internationalizing domestic business
involves market survey, product management,
quality upgradation,managerial efficiency and the
like. These activities involve higher cost and risk.
----Problems of International Business
• Other Issues:
1.Different Legal & Regulatory Framework
2.Language Barriers
3.Cultural Differences
4.Differences in monetary Systems
5.Other Government imposed barriers

28
 International Entry Modes
• Exporting( Direct, Indirect, Intra-corporate
transfer)
• Licensing & Franchising
• Special Modes(Contract Manufacturing,
BPO/KPO, Management Contracts, Turnkey
Projects, Assembly Operations, Third Country
Locations)
• FDI (Without alliance)-Green Field FDI
• FDI with Alliance-(M&A, JVs, Other Alliance)
29
 Exporting
• Most Common Mode
• Direct Export-Sale to customers located outside
the company’s home country
• Indirect Export-Sale through another domestic
company in their original form or modified form.
• Intra corporate Transfer-Parent Subsidiary
Company Transfer.
• Advantage-Easy & Low risk
• Disadvantage-Transportation cost, Loyalty of
agents

30
 Licensing & Franchising
• International licensing & franchising is a process by
which companies can internationally exploit successful
products without having to set up overseas factories.
• Here a company in one country(the licensor)permits
another company in another country(the licensee) to
use its intellectual property .(Patents, Trademark,
copyright, technology, technical knowhow, marketing
skill or some other specific skill)
• The monetary benefit is the royalty or license fee.
• Advantage-Low Investment
• Disadvantages-Brand Name at stake
31
 ------Licensing & Franchising
• It is a special form of licensing that gives
companies more control over the international
exploitation of their technology, products and
reputation.
• The franchiser gives the franchisee the right to
exploit a trademark controlled by the former for a
fee but under quite complex conditions.
• The franchiser take on a more active managerial
support role than in case of licensing agreement.
• Example: -( KFC, McDonald, Coca-Cola, Pepsi etc)
32
 Contract Manufacturing
• Here the international company outsources its
partial or entire production and concentrates
on marketing operations.
• It enters into contracts with firms in other
countries to manufacture or assembles the
products while retaining the responsibility of
marketing the products.
• Example-Nike, Reebok

33
 BPO & KPO
• It is the act of transferring some of an
organization's repeated noncore and core
business processes to an outside provider to
achieve cost reduction while improving service
quality.
• BPO that is contracted outside the domestic
country is called offshore out sourcing. If it is
contracted to a neighbouring or near by
country is called near shore outsourcing.

34
 Management Contracting
• A management contract is an arrangement under
which the operational control of a company is
vested by contract to another company that
performs the necessary managerial functions in
return for a fee.
• The fee can be flat amount or a percentage on
top line or bottom line.
• Managerial function includes-production
function, hr function, marketing function etc.
• Example-Marriot International Ltd, Estate Mgt
Services Pvt Ltd(Tata).
35
 Turnkey Projects
• Turn key refers to something that is ready for
immediate use.
• It is contract in which one company agrees to
fully design and equip a manufacturing
business, or service facility and then hand it
over to another company (purchaser) when it
is ready for operations against a specified fee.
• These are very common in international
business in case of refinery, steel mills etc.

36
 Assembly Operations
• A manufacturer who wants several advantages
associated with overseas manufacturing
facility but does not want to establish
manufacturing facility abroad can establish
overseas assembly units in that country.
• Advantage-Tariff on assembly parts are low in
comparison to finished products, Investment
to be made is quite low.

37
 Third Country Location
• When no commercial transactions or direct
transactions are possible between two nations
because of political reason, a company in one
of these nations that want to enter the other
market will have to operate from a third
country base.
• Example-Taiwaneese entrepreneurs found
easy to enter China through Hongkong.

38
 FDI without Alliance(Green field FDI)
• It is a form of FDI where a parent company
starts a new venture in a foreign country by
constructing new manufacturing and
operational facilities from the grounded up.
• Advantage-Creation of new facilities, Creation
of new long term jobs

39
 FDI with Alliance
• FDI with alliance can be broadly classified in to
the following three categories:
1.Joint Ventures(JVs)
2.Merger & Acquisition(M&A)
3.Other Strategic or Functional Alliance

40
 Joint Ventures(JVs)
• It is an arrangement where two or more
companies cooperate in order to run a business.
• JV can be on a long-term basis or on a limited
basis.
• In countries where fully foreign owned firms are
not allowed or favored JV is the alternative.
• Advantage-Low investment, Local Partner
advantage

41
 Mergers & Acquisition
• A merger is a combination of two or more
companies to form a new company.
• Acquisition is the purchase of one company by
another in which no new company is formed.
• Acquisition is called takeover. It can be friendly
takeover or hostile takeover.
• Advantage : Synergy Effect, Inorganic growth
• Example-Tata acquired Corus, Mittal acquired
Arcelar
42
 Strategic Alliance
• This strategy seeks to enhance the long term
competitive advantage of the firm by forming
an alliance with its existing or potential
competitors instead of competing with each
other.
• It can be of-Technology development alliance,
Marketing ,sales and service alliance, Research
& Development alliance etc.

43
THANK YOU