Meaning of International Business:
International business is a term used to collectively describe all commercial transactions that take place between two or more
nations. Usually, private companies undertake such transaction for profit; governments undertake them for profit and for political
reasons.
Transaction of economic resources include capital, skills, people etc. for international production of physical goods and services
such as finance, banking, insurance, construction etc.
DEFINITION OF INTERNATIONAL BUSINESS
The economic system of exchanging good and services, conducted between individuals and businesses in multiple countries
OBJECTIVES OF INTERNATIONL BUSINESS
1. Sales expansion, 2. Resource acquisition, 3. Risk minimization
FUNCTIONS OF INTERNATIONAL BUSINESS
Marketing, Accounting, Finance, Human Resources, Global Manufacturing and Supply chain Management
NEEDS OR BENEFITS OF INTERNATIONAL BUSINESS
Enhances the domestic competitiveness Maintain cost competitiveness in your domestic market
Takes advantage of international trade technology Enhance potential for expansion of your business
Increase sales and profits & Gains a global market share Reduce dependence on existing markets
Extend sales potential of the existing products The existence of resources
FACTORS THAT PROVOKE INTERNATIONAL BUSINESS
Pull Factor: These are the proactive reason which forces the business to the foreign markets. companies are motivated to
internationalize because of the attractiveness of the foreign market, such attractiveness includes profitability & growth prospects.
Push Factor: It refers to the compulsions of domestic market like saturations of market, which prompt companies to
internationalize. Most of the push factors are reactive reasons.
Differences between domestic and international businesses
Currency (payments) Distances
Legal systems Tariff Barriers
Culture Differences and Language Differences Documentations
Resource availability (Technical Differences) Transport and Insurance cost
Why Go International
To Achieve Higher rate of Profits High Cost of Transportation
Expanding the production capacities beyond the demand Nearness to Raw Materials
of the Domestic Country Availability of Quality Human Resources at less cost
Severe Competition in the Home Country Liberalization and Globalization
Limited Home Market To increase Market Share
Political Stability Vs Political Instability To avoid tariff and import Quotas
Availability of Technology and Managerial Competence
STAGES OF INTERNATIONALIZATION
1. Domestic Company: These Companies view on the domestic market opportunities, domestic suppliers, domestic financial
companies, domestic customers etc.
2. International Company: The focus of these companies is domestic but extends the wings to the foreign countries. These
companies select the strategy of locating the branch in the foreign markets and extend the same domestic operations into foreign
markets.
3. Multinational Company: MNC – Multinational Corporation is a company, which produces goods or markets its services in more
than one country. In a narrow sense it is a company that through foreign direct investment controls and manages subsidiaries in a
number of countries outside its home base. It formulates different strategies for different markets
4. Global Company: Global Company either produces in home country or in a single country and focuses on marketing these
products globally, or produces the products globally and focuses on marketing these products domestically. Manufacture globally
and sell locally and vice versa
5. Transnational Company: Its sales, investments, production, R&D activities and other business related operations are carried out
in many countries. It is an integrated global enterprise which links global resources with global markets at profit. Manufacture @
low cost and sell globally. Think globally and act locally
ADVANTAGES OF INTERNATIONAL BUSINESS
Product Flexibility: If you have products that don’t sell well in your local or regional market, you may find greater demand abroad.
Less Competition:
Protection from National Trends and Events: When you market to several countries, you are not as vulnerable to events in any one
country. For example, if you sell soft drinks with high sugar content, you could discover that your home country frowns upon drinks
that offer extra calories. You may be able to sell the same product in another country that has a much different attitude toward these
drinks.
Learning New Methods: When you do business in another country, you learn new ways of doing things. You can apply this new
knowledge to other markets.
The economic benefits that greater openness to international trade brings are:
Faster growth:
Cheaper imports:
Spur of foreign competition:
Increase consumer income:
Increased investment opportunities:
Modes of entry into international business (Different Forms /Global Entry strategy)
Export Foreign direct investment
Licensing Contract Manufacturing
Franchising Strategic alliance
Management contracts Joint venture
Turnkey Projects Merger
Acquisition
GLOBALIZATION: According to International Monetary Fund, globalization means "the growing economic interdependence of
countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international
capital flows and also through the more rapid and widespread diffusion of technology. Interdependency and integration of individual
countries of the world is also called as globalization. Globalization integrates not only economies but also societies. The globalization
process includes: Globalization of markets, Globalization of production, Globalization of technology, Globalization of investment
Characteristics of Globalization:
Difference between domestic market and foreign market tends to disappear.
Decision to make any product takes place by considering entire world as a market.
On account of global markets, Customers tend to get highest value for money.
Rapid increase in mobility of resources takes place under globalization.
It tends to remove international trade barriers.
It tends to drive out sick and inefficient companies, but provides tremendous scope for sound companies.
Stages of Globalization: Ohmae identify five different stages in the development of a firm into a global corporation.
The first stage is domestic company which moves into new markets overseas by linking up with local dealers and distributors.
In stage two, the company takes over these activities on its own.
The domestic based company begins to carry out its own manufacturing, marketing and sales in the key foreign markets.
Firm moves to full insider position in these markets, supported by complete business system including R & D and engineering.
In the fifth stage, the company moves toward a genuinely global mode of operation.
Globalization of Indian Business:
Advantages or Merits of Globalization:
Access of less developed countries to international market. The adoption of the socio-ecological view of consumption.
The emergence of transnational market segments. The emergence of an inter-connected Global Economy.
Growing power of the large international distributors The development of good Corporate Citizenship behavior.
Criticisms of Globalization
1. Threats to national sovereignty 3. Growing income inequality and personal stress
2. Economic growth and environmental stress
The Forces Driving Globalization
1. Increased in and expansion of technology 4. Growing consumer pressures
2. Liberalization of cross-border trade & resource movements 5. Increased global competition
3. Development of services that support international 6. Changing political situations
business 7. Expanded cross-national cooperation
PROTECTIONISM AND TRADE LIBERALISATION
Protectionism- Means by which trade between countries is restricted in some way – normally through measures to reduce the
number of imports coming into a country
Tariff: A tax on a good coming into a country
Increases the price of the good and makes it less Advalorem – imposed on percentage on values of
competitive goods imported
Export – good which leave the country or Specific – attributes like weight, quantity, value
Transit – pass through one country bound for etc.
another Compound- partly as a % on value and as a rate
Import – imposed on goods to country or goods /unit or weight
imported
Non – Tariff Barriers
Quotas – refers to numerical limits on the quantity of goods during a specified period
Quantity must be stated in the license. Has the penalty exceeds the limit
Voluntary Export Restraints (VERs) – quota on trade imposed by exporting country, at the request of importing country
Subsidies
Government payment to domestic producer Helps in foreign imports ar low-cost
Several forms cash grants, low-interest loans, Gain access to export markets
tax breaks, government participation
Other Non-Tariff Barriers
Embargo
refers to complete ban to trade in one or more products
Most restrictive trade barrier
Use less today were in the past
Product & Testing standards
Meet the requirements of their specifications and they test the quality standards
Currency Controls
Must pay in a common, internationally acceptable currency such as US $ etc.
Must obtain the currency from domestic banking system
Administrative Delays
Requiring product inspection, custom office to cause unusual delays, requiring special licenses that take a long
time
Local Content Requirement
Legal stipulation of specified amount of goods and services supplied by the producers in domestic market
Government may state that input used partially at least in the production of goods.
Examples include setting exacting standards on fuel emissions from cars, the documentation required to be able to sell
drugs in different countries, the ingredients in products – some of which may be banned in the destination country
NTBs are difficult to prove – when do you accuse a country of protectionism – could be a legal or cultural issue?
The main method involved in NTBs is not to prevent trade but to make the cost of doing so prohibitive to the potential exporter
Trade Liberalisation
Aims to free up world trade and break down the barriers to international trade
Basic philosophy rests on the principle of comparative advantage
Talks to achieve trade liberalisation have been on-going for many years
GATT – General Agreement on Tariffs and Trade
First signed in 1947 – talks on-going since then!
Uruguay Round 1994 – set up the World Trade Organisation (WTO) as well as agreements covering a range of trade
liberalisation measures.
WTO provides the forum through which trade issues can be negotiated and works to help implement and police trade
agreements
Potential benefits:
Promotes international specialisation and increases world output
Promotes efficient use and allocation of world resources
Allows developing countries access to the heavily protected markets of the developed world thus helping promote
development
Facilitates the working of the international market system and the working of price signals to ensure efficient
allocation of resources, international competition and the associated benefits to all
Limitations:
World agreements are very difficult to achieve.
Witness the issues over the removal or reduction of agricultural subsidies, tariffs
