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International Business

1 Introduction to
International Business

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1. An overview of International Business,Globalization & International


Business Environment.
2. Cross-cultural variation and analysis.


International Business
◉ International business refers to the trade of goods, services, technology, capital and/or knowledge across
national borders and at a global or transnational level. It involves cross-border transactions of goods and
services between two or more countries.
◉ Transactions of economic resources include capital, skills, and people for the purpose of the international
production of physical goods and services such as finance, banking, insurance, and construction.
International business is also known as globalization.
◉ To conduct business overseas, multinational companies need to bridge separate national markets into one
global marketplace. There are two macro-scale factors that underline the trend of greater globalization.
The first consists of eliminating barriers to make cross-border trade easier (e.g. free flow of goods and
services, and capital, referred to as "free trade"). The second is technological change, particularly
developments in communication, information processing, and transportation technologies.

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Importance of International Business
◉ It acquires more sales: Businessmen will have the chance to expand their companies and to be known to
other countries. Undoubtedly, this will increase their profits rather than restricting their business within
their own borders.
◉ It opens new opportunities: If there are increasing numbers of foreign companies in our country, they
will need more manpower to help them in running the business. We will be given the chance to use and to
share our skills and knowledge, once we are hired. In return, we will gain income to provide the needs of
our family. The agreement also implies that we can go to their country to work, to study, or to live.
◉ It gives new technologies: Other countries have invented different technologies which can help us in our
daily living like modern appliances and computers. For those countries that lack the means to create new
high quality technologies can also have an access to enjoy the benefits once these technologies are
exported to them. Another example is the invention of rear projection screens. These will help us in
disseminating and advertising in our country.

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Importance of International Business
◉ It utilizes the resources: Countries that are rich in fuel, minerals, and many more can utilize their
resources by sharing these to others. Instead of keeping these resources, they can share these to other
countries so that others will also have the benefits. In return of their resources, they can have more income
for their government.
◉ It provides quality products: Different countries have their own unique and useful products and services
that they can offer to us. In this way, we can choose the best ones that are helpful to us. There are wide
varieties of choices when it comes to brands, prices, designs, and features.
◉ It helps in earning foreign exchange: Investors are welcomed to invest from both local and international.
More investors mean that the economic status of our country will become stable. This helps a lot,
especially those fellow citizens that need assistance from the local government.
◉ It acquires investment in infrastructure: Countries that deal with international business need to invest in
infrastructure. This will help them in transporting and communicating with other business partners and
customers. This will also help the people since these infrastructural developments are open to be used by
the public.

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Influences of International Business
◉ Accurate Information
◉ Information not only accurate but should be timely
◉ The size of the international business should be large
◉ Market segmentation based on geographic segmentation
◉ International markets have more potential than domestic markets

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Entry Mode In International Business
1. Direct Exporting: Direct exporting involves you directly exporting your goods and products to another
overseas market. For some businesses, it is the fastest mode of entry into international business. In case you
foresee a potential demand for your goods and products in an overseas market, you can opt to supply your
goods directly to an importer instead of establishing your retail presence in the overseas market. Then you can
market your brand and products directly or indirectly through your sales representatives or importing
distributors. And if you are in an online product based company, there is no importer in your value chain.
Advantages of Direct Exporting
a. You can select your foreign representatives in the overseas market.
b. You can utilize the direct exporting strategy to test your products in international markets before making a
bigger investment in the overseas market.
c. This strategy helps you to protect your patents, goodwill, trademarks, and other intangible assets.

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Entry Mode In International Business
Disadvantages of Direct Exporting
a. For offline products, this strategy will turn out to be a really high-cost strategy. Everything has to be set up by
your company from scratch.
b. While for online products this is probably the fastest expansion strategy, in the case of offline products, there
is a good amount of lead time that goes into the market research, scoping and hiring of the representatives in
that country.

2. Franchising: It is a system in which semi-independent business owners (franchisees) pay fees and royalty to
a parent company (franchiser) in return for the right to be identified by the trademark, to sell its product and
services , and often to use its business format or system.
Advantages of Franchising
a. It is less risky
b. Advantage of expertise of franchiser
c. Low cost of entry into an international market 9
Entry Mode In International Business
c. Reduces political risk as in most cases, the franchising partner is a local business entity
d. Allows expansion in multiple regions with minimal investment
Disadvantages of Franchising
a. Difficulty in keeping trade secrets
b. Franchiser might become a future competitor
c. Your business risks spoiling its brand image and reputation in the overseas and other markets due to the
incompetence of their licensing and franchising partners.

3. Licensing: Licensing is a method in which a firm gives permission to a person to use its legally protected
product or technology (trademarked or copyrighted) and to do business in a particular manner, for an agreed
period of time and within an agreed territory. It is a very easy method to enter foreign market as less control and
communication is involved. The financial risk is transferred to the license and there is better utilization of
resources.
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Entry Mode In International Business
Advantages of Licensing
a. Easy appointment
b. Less investment is involved
c. Low cost of labor
Disadvantages of Licensing
a. This method is time consuming
b. Decline in product quality may harm the reputation of licensor

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Entry Mode In International Business
4. Joint Ventures: A joint venture is one of the preferred modes of entry into international business for
companies who do not mind sharing their brand, knowledge, and expertise.
Companies wishing to expand into overseas markets can form joint ventures with local businesses in the
overseas location, wherein both joint venture partners share the rewards and risks associated with the business.
Both business entities share the investment, costs, profits, and losses at the predetermined proportion.
This mode of entry into international business is suitable in countries wherein the governments do not allow
one hundred percent foreign ownership in certain industries.
Advantages of Joint Venture 
a. Both partners can leverage their respective expertise to grow and expand within a chosen market.
b. The political risks involved in joint-venture is lower due to the presence of the local partner, having
knowledge of the local market and its business environment.
c. Enables transfer of technology, intellectual properties, assets, knowledge of the overseas market, etc. between
the partnering firms
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Entry Mode In International Business
Disadvantages of Joint Venture
a. Joint ventures can face the possibility of cultural and political clashes within the organization.
b. Conflicts over asymmetric investments.
c. Conflicts in management

5. Strategic Acquisitions : Strategic acquisition implies that your company acquires a controlling interest in an
existing company in the overseas market. This acquired company can be directly or indirectly involved in
offering similar products or services in the overseas market. You can retain the existing management of the
newly acquired company to benefit from their expertise, knowledge, and experience while having your team
members positioned in the board of the company as well.
Advantages of Strategic Acquisitions
a. Your business does not need to start from scratch as you can use the existing infrastructure, manufacturing
facilities, distribution channels, and an existing market share and a consumer base.
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Entry Mode In International Business
b. Your business can benefit from the expertise, knowledge, and experience of the existing management and key
personnel by retaining them.
c. It is one of the fastest modes of entry into an international business on a large scale.
Disadvantages of Strategic Acquisitions
a. Just like Joint Ventures, in Acquisitions as well, there is a possibility of cultural clashes within the
organization due to the difference in organization culture
b. Apart from that, there mostly are problems with seamless integration of systems and process. Technological
process differences are one of the most common issues in strategic acquisitions.

6. Foreign Direct Investment: Foreign Direct Investment involves a company entering an overseas market
by making a substantial investment in the country. Some of the modes of entry into international business using
the foreign direct investment strategy includes mergers and acquisitions, joint ventures and greenfield
investments.
This strategy is viable when the demand or the size of the market, or the growth potential of the market in the
substantially large to justify the investment. 14
Entry Mode In International Business
Some of the reasons because of which companies opt for foreign direct investment strategy as the mode of
entry into an international business can include:
◉ Restriction or import limits on certain goods and products
◉ Manufacturing locally can avoid import duties.
◉ Companies can take advantage of low-cost labor and cheaper material.
Advantages of Foreign Direct Investment
a. You can retain your control over the operations and other aspects of your business.
b. Leverage low-cost labor, cheaper material, etc. to reduce manufacturing cost towards obtaining a competitive
advantage over competitors.
c. Many foreign companies can avail for subsidies, tax breaks and other concessions from the local
governments for making an investment in their country.

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Entry Mode In International Business
Disadvantages of Foreign Direct Investment
a. The business is exposed to high levels of political risk, especially in case the government decides to adopt
protectionist policies to protect and support local business against foreign companies
b. This strategy involves substantial investment to be made for entering an international market.

7. Outsourcing: It is a cost effective strategy used by companies to reduce costs by transferring portions of
work to outside suppliers rather than completing it internally. It includes both domestic and foreign contracting
and also off shoring (relocating business functions to another country).
Advantages of outsourcing
a. Expertise in operations
b. Concentration on core process rather than supporting ones
c. Risk sharing
d. Reduced costs
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Entry Mode In International Business
Disadvantages of Outsourcing
a. Risk of exposing confidential data
b. Hidden costs
c. Lack of customer focus

8. Contact manufacturing: When a foreign firm hires a local manufacturer to produce their product or a part
of their product is known as contract manufacturing. This method utilizes the skills of a local manufacturer and
helps in reducing cost of production. The marketing and selling is responsibility of international firm.
Advantages of Contract manufacturing
a. Low cost of production
b. Development of medium and small scale industries
c. No dilution of control
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Entry Mode In International Business
Disadvantages of Contract manufacturing
a. Difficulty in maintaining quality standard
b. Local manufacturers in foreign market may lose business

9. Mergers & Acquisitions: A merger is a combination of two or more district entities into one, the desired
effect being accumulation of assets and liabilities of distinct entities and several other benefits such as tax
benefits, fast growth diversification etc. The merging entities cease to be in existence and merge into a single
servicing entity.
Acquisitions implies acquisition of controlling interest in a company whose shares are acquired . It may be a
friendly and hostile acquisition or a bail out takeover.

10. Turn Key Project: It involves the delivery of operating industrial plant to the client without any active
participation. A company pays a contractor to design and construct new facilities and train personnel to export
its process and technology to other country. It can be of various types- 18
Entry Mode In International Business
a. BOD- Build, Owned and Develop
b. BOLT- Build, Owned, Leased and Transferred
c. BOOT- Build, Owned, Operate and Transfer

10. Strategic Alliance: It is a voluntary formal agreement between two companies to pool their resources to
achieve a common set of objectives while remaining independent entities. It is mainly to expand the production
capacity and increase market share for a product. Alliances help in developing new technologies and utilizing
brand image and market knowledge of both the companies.

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Intellectual Property Rights
IPR: It encompasses various types of mind like inventions. An IPR could be any creators thing like a music
composition, movie, book etc.
The creators or owners of such intangible or non-monetary assets are granted certain exclusive rights over the
creations or works.
Types of IPR:
1. Copyrights- It is a right conferred on the owner of a literacy or artistic work. It is an exclusive right to
control the publication, distribution and adaptation of creative works. The right lies with the owner cum
copyright holder for a certain period. The right lasts for 95 years from the date of first publication or 120 years
from the date of creation.
2.Trademarks- It is a symbol used to identify a particular product, which indicates its source. It can be a
combination of words, phrases, symbols, logo designs images, or devices, used by an individual, legal entity or
business organization to distinguish their products from others.
3. Patents- Patents are rights related to the new inventions. Such rights are conferred on persons who invent
any new machine, process article of manufacture or composition of matter and biological discoveries. Patent is
20 years from the date of filling the application. 20
Intellectual Property Rights
4. Industrial Design Rights- These rights protect the visual design of objects. The creation of a shape, color,
pattern or a combination of all these things. It can be an industrial commodity or a handicraft. It id conferred
after considering factors lie novelty, originality and visual appeal. It is for a period of 10 to 25 years.
5. Trade Secrets- These are designs, practices, formulas, instruments, processes, pattern or ideas which are
used by a company to gain an economic advantage over its competitors. Trade secret differs from other types of
IPR, because it is the responsibility of the owner to keep the secret and it is not protected through government
policies. Once it is leaked it can be used by any person.

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Globalization
Globalization refers to the ongoing social, economic, and political process that deepens the relationships and
broadens the interdependencies amongst nations—their people, their firms, their organizations, and their
governments. International business involves all commercial transactions—private and governmental—between
parties of two or more countries. Global events and competition affect almost all firms—large or small.
However, the international environment is more complex and diverse than a firm’s domestic environment.

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Forces that affect Globalization
A. Increase in and Expansion of Technology: Vast improvements in transportation and communications
technology— including the development of the Internet—have significantly increased the effectiveness
and efficiency of international business operations.
B. Liberalization of Cross-Border: Trade and Resource Movements Over time most governments have
lowered restrictions on trade and foreign investment in response to the expressed desires of their citizens
and producers. In addition, the General Agreement on Tariffs and Trade, the development of economic
blocs such as the European Union, and other such facilitating mechanisms have provided increased access
to many foreign markets.
C. Development of Services: That Support International Business Services provided by government, banks,
transportation companies, and other businesses greatly facilitate the conduct and reduce the risks of doing
business internationally.
D. Growing Consumer Pressures: Because of innovations in transportation and communications technology,
consumers are well-informed about and often able to access foreign products. Thus competitors over the
world have been forced to respond to consumers’ demand for increasingly higher quality, more cost-
competitive offerings.
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Forces that affect Globalization
E. Increased Global Competition: The pressures of increased foreign competition often persuade firms to
expand internationally in order to gain access to foreign opportunities and to improve their overall operational
flexibility and competitiveness.
F. Changing Political Situations: The transformation of the political and economic policies of the former
Soviet Union and the People’s Republic of China has led to vast increases in trade between those countries and
the rest of the world. In addition, the improvements in national infrastructure and the provision of trade-related
services by governments the world over have further led to substantial increases in foreign trade and investment
levels.
G. Expanded Cross-National Cooperation: Governments have increasingly entered into cross-national
treaties and agreements in order to gain reciprocal advantages for their own firms, to attack problems jointly
that one country cannot solve alone, and to deal with areas of concern that lie outside the territory of all
countries. Often, such cooperation occurs within the framework of international organizations such as the
United Nations, the International Monetary Fund, the World Trade Organization, and the International Bank for
Reconstruction and Development (World Bank).

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Criticism of Globalization
A. Threats to National Sovereignty: Many citizens fear that a country’s participation in multilateral
agreements will diminish its sovereignty and freedom from external control and curtail its ability to act in its
own best interests. In particular, people in small countries worry that dependence on larger countries for sales
and/or supplies, as well as the presence of large international firms, will make them vulnerable to the demands
of parties against which they are essentially powerless. In addition, people the world over are concerned that
globalization will bring the homogenization of products and traditional ways of life—including language and
social structure.
B. Economic Growth: Clearly, economic growth can result in both positive and negative consequences,
including damage to society and the environment. While globalization can, in fact, support the sustenance of
natural resources and the maintenance of an environmentally sound planet, unless the positive consequences of
globalization keep pace with the negative costs of economic growth, the sustainability of economic
improvement on a worldwide basis will, at best, be problematic.
C. Growing Income Inequality: Offshoring, the process of shifting domestic production to a foreign country
for the purpose of serving the home market at a reduced cost, speeds up the process of altering the relative
economic discrepancies between the two countries involved. Thus, even if the overall global gains from
globalization are positive, there remains a continuing challenge to bring about the positive gains in ways that
minimize costs to the losers. 25
International Business Approaches
1. Ethnocentric- The domestic company continues the exports to the foreign countries and views the foreign
markets as an extension to domestic markets just like a new region. The company exports the same product
designed for domestic markets to foreign countries under this approach.
2. Polycentric- In this the company establishes a foreign subsidiary company and decentralizes all the
operations and delegates decision making and policy making authority to its executives. The executives of
the subsidiary formulate the policies ad strategies, design the product based on host country’s environment.
3. Regiocentric- The company after operating successfully in a foreign country, thinks of exporting to the
neighboring countries of the host country. At this stage it thinks of selling products in the regional
environment of host country with different market strategies.
4. Geocentric- The entire world is just like single country for the company. They select the employees from
the entire globe and operate with a number of subsidiaries. The headquarters coordinate the activities of the
subsidiaries.

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Stages of Interationalization
1. Domestic Company- Domestic company limits its operations, mission and vision to the national political
boundaries. This companies focuses its view in the domestic market opportunities, domestic suppliers, domestic
financial companies, domestic customers, etc. The domestic company never thinks of growing globally.
2. International Company- Domestic companies which grow beyond the boundaries . These companies select
the strategy of locating a branch in the foreign markets. They extend the same product, domestic price,
promotion and other practices to foreign market. This is ethnocentric.
3. Multinational Company- An International company turns into Multinational Company when it starts
producing goods as per the need of international market. Thus, he orientation sifts from ethnocentric to
polycentric.
4. Global Company- The global company either produces in home country or in a single country and focuses
on marketing these products globally.
5. Transnational Company- It produces, markets, invests and operates across the world. It is an integrated
global enterprise that links the global resources with global markets at profit.

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Advantages of International Business
1. High living standards
2. Wider market
3. Reduced effects of business cycles
4. Reduced risks
5. Exploiting potential markets
6. Provides opportunity/challenge to domestic market
7. Economic growth of the world
8. Optimum and proper utilization of world resources

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Problems of International Business
1. Political factors
2. Huge foreign indebtness
3. Currency exchange instability- Currencies are depreciated due to imbalances in BoP, political instability
and foreign indebtness. This in turn leads to instability in the currency.
4. Entry requirements
5. Tariffs, quotas and trade barriers
6. Technological pirating
7. Quality maintenance

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