INTERNATIONAL BUSINESS –AN

INTRODUCTION

PROF. MURALI KRISHNAMURTHY

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 INDEX
• Introduction to International Business
• Nature & Scope & Feature of I B
• Importance of I B
• Approaches of I B
• Motivation to do I B
• Need for I B
• Adopting to Customers Needs
• Problems in I B
• Entry Strategy
• Advantages & Disadvantages of I B
• Reasons for recent I B Growth
• International Organization
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 WHAT IS INTERNATIONAL BUSINESS ?

• The exchange of

goods & services,

Resources,

Knowledge,

& Skills , among individuals & businesses in multiple/two

or more countries.

• Transaction that are carried out across national borders

to satisfy the objectives of individuals and organization

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 WHAT IS INTERNATIONAL BUSINESS ?

• All Commercial transactions that take place between two

or more countries. –

1-Private & Government

2-Sales

3-Investments

4-Logistics

5- Transportation

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 NATURE OF IB

1. Accurate Information & timely

2. The size of the international business

3. Market segmentation

4. International markets have more potential than

domestic markets

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 SCOPE OF IB

1. International Marketing

2. International Finance and Investments

3. Foreign Exchange

4. Global HR

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 FEATURES OF IB

1. Large scale operations

2. Integration of economies

3. Dominated by developed countries and MNCs

4. Benefits to participating countries

5. Keen competition

6. Special role of science and technology

7. International restrictions
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 IMPORTANCE OF IB
1. Earn foreign exchange

2. Optimum utilisation of resources

3. Achieve its objectives

4. To spread business risks

5. Improve organization's efficiency

6. Get benefits from Government

7. Expand and diversify

8. Increase competitive capacity

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GOING INTERNATIONAL

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 I B APPROACHES

1. Ethnocentric approach

2. Polycentric approach

3. Regiocentric approach

4. Geocentric approach

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 I B APPROACHES

1. Ethnocentric approach

• Under this approach , target market is own

country , Exccesive production will export

due to change in customer taste, preferences

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1. Ethnocentric approach
Organization Structure
Managing Director
↓
↓
↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓
MGR MGR MGR MGR
MGR
R& D FIN PROD HRD
MKTG

↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓
Asst.Mgr Asst.Mgr Asst.Mgr
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 I B APPROACHES

2. Polycentric approach

• Under this approach, the companies

customizes the marketing mix to meet the

taste, performance and needs of the

customers of each international market.

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2. Polycentric approach
Organization Structure
Managing Director
↓
→→→ CEO
↓ FOREIGN SUBSIDIARY
↓ SOUTH AFRICA
↓
↓
↓
↓
↓⁻⁻⁻⁻⁻⁻⁻⁻↓ ⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓ ⁻⁻⁻⁻⁻⁻⁻⁻⁻↓ ⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓
MGR MGR MGR MGR MGR

R&D FIN PROD HRD MKTG

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 I B APPROACHES

3. Regiocentric approach

• Under this approach, the company operating

successfully in a foreign country thinks of exporting

other neighbouring countries of the host country.

• At this stage, the concerned subsidiary considers the

regional environment ( such as laws, culture, policies

etc) for formulating the policies & strategies.

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3. Regiocentric approach
Organization Structure
Managing Director
↓
→→→ CEO
↓
Asia
Pacific
↓ ↓⁻⁻⁻⁻⁻⁻⁻↓ ⁻⁻⁻⁻⁻⁻⁻⁻↓

↓ Mktg Mktg Mktg

↓ ( India) ( Pakistan) ( Bhutan)
↓
↓⁻⁻⁻⁻⁻⁻⁻ ⁻ ↓ ⁻⁻⁻⁻⁻⁻⁻⁻↓ ⁻⁻⁻⁻⁻⁻⁻↓ ⁻⁻⁻⁻⁻⁻⁻⁻↓
MGR MGR MGR MGR MGR
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R&D FIN PROD HRD MKTG
 I B APPROACHES
4. Geocentric approach
• Under this approach, the company analyses the tastes,
preference and needs of the customers in all foreign markets
and then adopts a standardized marketing mix for all the foreign
markets.

• Coca-cola adopted this strategy by selling its popular soft drink

with the same content, packaging, branding & advertisement
themes worldwide

• Whirlpool designs a world-washer – small, stripped-down

automatic washing machine for Mexico, Brazil & India. However,

it modified its product for Indain market to wash the

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delicate “sarees”.
4. Geocentric approach
Organization Structure
Managing Director
Headquarters India
↓
↓
↓

↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓ ⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓ ⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓

Subsidiary Subsidiary Subsidiary Subsidiary

India South Africa Kenya Nambia 18

 MOTIVATION TO DO I B

1. Proactive:
to increase profit
to take advantage of product life cycle
to achieve Economies of scale
2. Reactive:
Competitive pressures
Overproduction and excess capacity
Declining domestic sales
saturated domestic markets

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 NEED FOR I B
1. Achieve higher rate of profits

2. Expanding the production capacity beyond the demand

of the domestic country

3. Availability of technology and managerial competence

4. Cost of manpower, transportation & Nearness to R/M

5. LPG Implt.

6. Market share

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 ADOPTING TO CUSTOMERS NEEDS

1. Products and Services should meet to foreign

market

2. Price adjustments by considering the cost of

foreign trade, such as transportation, taxes,
exchange rate

3. Distribution system through existing transportation

system, suppliers and stores

4. Promotion should be modified based on different

languages, law, and culture from country to
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country
 PROBLEMS IN I B

1. Political factors

2. High foreign investments and high cost

3. Exchange instability

4. Entry requirements

5. Tariffs, quota etc.

6. Corruption and bureaucracy

7. Technological policy

8. Quality Management
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 ENTRY STRATEGY

1. Exporting
• Indirect & Direct

2. Licensing
• Agreement
• Patent, trademark, copy right, technology,
production processes, and product
• licensee’s fee

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 ENTRY STRATEGY

2. Franchising
– by franchisers to franchisee
– Usage

3. Foreign Assembly
– Subsidiary
– local assembly

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 ENTRY STRATEGY
4. Turnkey Operation
– Staff of an operating facility
– foreign buyer

5. Foreign production subsidiary

– Establishment
– Purpose

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 ENTRY STRATEGY

6. Foreign production subsidiary

– Purpose of production

7. International Firm
– Significant portion
– In foreign countries

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 ENTRY STRATEGY

8. Multinational Corporation
– Parent country
– host country

9. Joint Venture
– Property rights

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 ENTRY STRATEGY

10. Foreign Direct Investment

– Arrangement in which a firm buys or establishes
tangible assets

– In another country

– Through direct investment

– By buying a company stock in capital markets

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 MAIN BARRIERS

1. Cultural and social barriers

2. Legal and political barriers

3. Economic barriers:

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 ADVANTAGES OF I B

1. Faster growth

2. Access to cheaper inputs

3. Increased quality and efficiency

4. New market opportunities

5. Diversification

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 DISADVANTAGES OF I B

1. Increased costs

2. Foreign regulations and standards

3. Delays in payments

4. Complex organizational structure

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 REASONS FOR RECENT GROWTH IN I B

1. Expansion of technology
2. Business is becoming more global because
•Transportation is quicker
•Communications enable control from afar
•Transportation and communications costs are more
conducive for international operations
3. Liberalization of cross-border movements
4. Lower Governmental barriers to the movement of
goods, services, and resources enable Companies to
take better advantage of international opportunities
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 INTERNATIONAL ORGANIZATION

• General agreement on Tariff and trade

(GATT) – an international organization formed to

reduce or eliminate tariff and other barrier to

international trade

• International Monetary Fund (IMF ) – an

international financial organization that lend money to

countries in conducting international trade

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 INTERNATIONAL ORGANIZATION

• World Bank – an international financial

organization that lend money to underdeveloped and
developing countries for development

• Economic Communities – the creation of

common economic policies

– World Trade Organization (WTO)

– European Community (EC)

– North American Free Trade Agreement (NAFTA)

– Asian Free Trade Agreement (AFTA)

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