UNIT -1 NOTES
INTERNATIONAL BUSINESS
International business refers to business activities that take place across national
borders. It encompasses the exchange of goods, services, capital, and technology
between countries, involving various forms like exporting, importing, foreign
direct investment, and international joint ventures.
NATURE OF INTERNATIONAL BUSINESS
1. Cross-Border Transactions: International business inherently involves activities
that extend beyond the boundaries of a single country. This can include exporting
and importing goods, licensing, foreign direct investment, and various forms of
collaboration.
2. Global Market Integration: It fosters greater interconnectedness and
interdependence between economies worldwide. As businesses expand
internationally, they contribute to the integration of markets and the flow of
goods, services, and capital across borders.
3. Diverse Environments: International business requires navigating a multitude of
different environments, including cultural, legal, political, and economic
systems. Companies must adapt their strategies and operations to succeed in
these diverse contexts.
4. Scale and Scope: International business typically operates on a larger scale than
domestic business, often involving complex logistical challenges and diverse
markets. It can range from simple export-import transactions to large-scale
multinational operations.
5. Competitive Landscape: The global market is highly competitive, with
companies from various countries vying for market share and customer
loyalty. Businesses need to innovate, differentiate, and adapt to succeed in this
environment.
6. Economic Interdependence: International business creates greater economic
interdependence between nations, as countries rely on each other for resources,
markets, and investment.
7. Growth and Development: It provides opportunities for businesses to expand
their reach, access new markets, and increase their revenue. It also contributes to
economic growth and development in participating countries by creating jobs,
fostering innovation, and increasing access to goods and service.
IMPORTANCE OF INTERNATIONAL BUSINESS
Importance for Firms:
• Market Expansion:
Accessing new markets allows businesses to increase sales and revenue
potential, reducing dependence on domestic markets.
• Diversification and Risk Management:
Operating in multiple countries reduces reliance on a single market,
mitigating risks associated with economic downturns or political instability
in one region.
• Access to Resources:
International business provides access to raw materials, technology, and
skilled labor that may not be readily available domestically.
• Economies of Scale:
Selling products and services in multiple countries allows companies to
achieve economies of scale, reducing costs and increasing efficiency.
• Innovation and Competitive Advantage:
Engaging in international trade pushes companies to innovate and
improve their products and processes to compete with global players.
• Improved Business Vision:
Exposure to different markets and cultures enhances a company's
understanding of global business practices, leading to better strategic
decision-making.
Importance for Nations:
• Economic Growth:
International trade contributes to a nation's GDP, creates jobs, and boosts
overall economic prosperity.
• Foreign Exchange Earnings:
Exporting goods and services generates foreign currency, which is crucial
for international transactions and maintaining currency stability.
• Resource Utilization:
Nations can export surplus resources and import scarce resources,
optimizing the use of global resources.
• Technological Advancements:
International trade facilitates the transfer of technology and knowledge,
leading to modernization and innovation in local industries.
• Cultural Exchange and Understanding:
Exposure to different cultures through international business fosters
mutual understanding and cooperation between nations.
• Economic Stability:
Diversifying trade partners reduces a nation's reliance on a single market,
making the economy more resilient to global shocks.
• Stronger International Relations:
Trade relations often lead to stronger diplomatic and political ties
between nations.
Difference between INTERNATIONAL BUSINESS AND DOMESTIC
BUSINESS:-
Modes of International Business
1. Exporting and Importing
Exporting and Importing is a very common mode to enter into International
business. Selling goods and services to a company in a foreign country is referred
to as Exporting. For instance, Gulab sold sweets to a store in Canada. Purchasing
goods from a foreign company is known as Importing. For instance, the purchase
of dolls from a Chinese company by an Indian dolls dealer. Exports and imports
are the typical way through which businesses begin their activities overseas
before moving on to other kinds of international trade.
Important Ways to Export and Import
i) Direct Importing/ Exporting: The company handles all of the necessary
paperwork for the shipment and financing of goods and services and deals
directly with foreign suppliers or purchasers.
ii) Indirect Importing/ Exporting: The company uses a middleman to handle all
the paperwork and negotiate with foreign suppliers or customers. The firm’s
involvement is limited.
2. Contract Manufacturing
According to Contract Manufacturing, every well-known company in a nation
accepts responsibility for promoting the goods and services created by a business
in another nation. Here, the company is specialised in the manufacturing process
but lacks marketing skills, whereas the other company, due to its established
reputation, is capable of selling those items and services. Offering these items and
services is not the primary business of these organisations, but they do it for the
benefit of their name and reputation, as well as to provide high-quality products
at a low cost to their customers.
Contract manufacturing is a type of international business, in which a firm enters
into a contract with another firm in a foreign country to manufacture certain
components or goods as per its specifications.
Multinational firms, like Maybelline, Loreal, Levis, and others use contract
manufacturing to have their products or component parts produced in
developing nations. Contract manufacturing is also known as international
outsourcing.
3. Licensing
When a corporation from one country (the Licensor) grants a license to a company
from another country (the Licensee) to use its brand, patent, trademark,
technology, copyright, marketing skills; etc., to assist the other firm sell its
products, this contractual agreement is referred to as Licensing. The licensor
corporation receives returns in proportion to sales.
Returns may take the form of royalties or fees. In other nations, the government
determines how the returns are fixed. This cannot exceed 5% of revenues in
several developing nations.
For instance, Pepsi and Fanta are made and distributed globally by local bottlers in
other nations under the licensing system.
The company that provides such authorisation is known as the Licensor while the
other company in a different country that receives these rights is known as the
Licensee. The mutual sharing of knowledge, technology, and/or patents between
the companies is called Cross-licensing.
4. Franchising
The franchise is the unique right or freedom that a producer grants to a certain
person or group of people to establish the same business at a specific location.
The producers use this contemporary business model to market their products in
far-off locations. In general, producers who have a good reputation use this
system. Individuals are motivated by their goodwill and try this mode of business
in order to earn profit.
Franchising is a contractual agreement that involves the grant of rights by one
party to another for use of technology, trademark, and patents in return for the
agreed payment for a certain period of time.
The business that gives the rights (i.e., the parent company) is referred to as the
Franchisor, and the business that purchases the rights is referred to as the
Franchisee.
5. Joint Ventures
A joint venture is formed when two or more businesses decide to work together
for a common goal and mutual benefit. These two commercial entities could be
private, public, or foreign-owned. Joint ventures are those types of businesses
that are established in international trade where both domestic and foreign
entrepreneurs are partners in ownership and management. The trade is carried
out in collaboration with the importing nation’s firm. For instance, the Joint
venture of the Indian company Maruti with the Japanese Company Suzuki.
6. Wholly Owned Subsidiary
When a foreign company establishes a business unit or acquires a full stake in any
domestic company, then they are called a Wholly-owned Subsidiary. Wholly
owned subsidiaries are set by a foreign company to enjoy full control over their
overseas operations. A wholly-owned subsidiary in a foreign country may be
established in two ways:
* Setting up of wholly-owned new firm in the foreign land, also called Green Field
Venture.
* Acquiring an established firm in a foreign country and using that firm to do
business in a foreign country.
GLOBALIZATION & It’s Impact
Globalization is the system of interaction among the countries of the world in
order to develop the global economy. Globalization refers to the integration of
economics and societies all over the world. Globalization involves technological,
economic, political, and cultural exchanges made possible largely by advances in
communication, transportation, and infrastructure.
Positive Impact
Globalization has had several positive impacts on the Indian economy:
* Increased Foreign Direct Investment (FDI): Globalization has attracted
significant FDI inflows into India. It has led to economic growth and created
employment opportunities.
* Expanded Market Access: Indian businesses have gained more access to
global markets. This has led to increased export opportunities and higher revenue
generation.
* Technological Advancements: Advanced technologies can now be
transferred more quickly. This has helped innovation and productivity in different
areas.
* Job Creation: The growth of MNCs in India has resulted in the creation of
jobs. This has reduced unemployment rates and improved livelihoods.
* Improved Infrastructure: Globalization has led to increased investments in
infrastructure development. For example, transportation, communication, and
power sectors improve connectivity and facilitate trade.
* Enhanced Consumer Choices: It has introduced a wide range of products
and services from around the world. This provides Indian consumers with greater
choices and quality options.
* Increased Foreign Exchange Reserves: Globalisation has led to an increase
in foreign exchange reserves. This is due to the growth in exports and foreign
investments. India's economic stability will be strengthened.
* Knowledge Sharing and Skill Development: Globalization improved the
exchange of knowledge and expertise. This has led to the development of a skilled
workforce in India.
* Tourism Industry: Globalization has spurred international tourism in India.
Tourism generates revenue, and creates employment opportunities in the
hospitality sector.
* Enhanced Competitiveness: Globalization has encouraged competition
among domestic and international companies. It pushes Indian businesses to
improve their products, services, and operational efficiency.
Negative Impact
Here are some of the negative impacts of globalization on the Indian economy:
* Unequal economic development: Globalization has resulted in unequal
economic development. Some regions and sectors have benefitted more than
others. This has led to income disparities and a growing wealth gap between the
rich and the poor.
* Job displacement: The increased competition from global markets has led
to the displacement of jobs. In specific sectors, particularly in labour-intensive
industries. This has affected vulnerable sections of society, such as low-skilled
workers.
* Vulnerability to global economic shocks: The Indian economy's connection
with global markets has increased its vulnerability. The Indian economy may
experience negative consequences due to fluctuations. The fluctuations can result
from worldwide commodity prices, financial crises, or trade disruptions. The
occurrence has resulted in a state of instability and deceleration.
* Adverse impact on domestic industries: Liberalization of trade policies has
led to a negative impact on domestic industries. This is because these industries
are now facing fierce competition from foreign companies. This has often resulted
in the decline of domestic industries.
* Environmental degradation: The environment has been negatively impacted
by the desire for economic growth. Unregulated industrial activities and increased
consumption have led to environmental degradation. Environmental degradation,
pollution, and depletion of natural resources.
* Exploitation of labor: It has led to the outsourcing of manufacturing and
service sector jobs to countries with lower labor costs. It has raised concerns
about the exploitation of labor. This includes low wages, poor working conditions,
and lack of labor rights.
* Cultural erosion: The spread of global brands, media, and cultural
influences has impacted culture and values. The dominance of foreign cultural
products and practices has led to the erosion of cultural diversity.
