GLOBAL BUSINESS

BY

Dr Priya Vinod
[email protected]
 • Syllabus
INTRODUCTION TO GLOBAL BUSINESS (10 Hrs)
• Evolution of international business
• nature of international business
• need & importance of International Business,
• stages of internationalization,
• MNC s and India,- P1 (Priya)
• OECD Guidelines for Multinational Enterprises. a)Concepts and Principles b) General
Policies c)Disclosure, d) Employment and Industrial Relations, e) Environment, f)
Combating Bribery, g) Consumer Interests h) Science and Technology, i) Competition.,
j) Taxation,- CIA 1
• (EPRG) approaches to international business, - P2(sandhya)
• theories of international business – Mercantilism , Absolute Advantage, Comparative
Advantage, Factor Endowment, Competitive Advantage,
• Tariff and non-tariff barriers, -P3(priya)
• Introduction to Political, Economic, Social-Cultural & technological environment of
international business.-P4(sandhya)
 • Core Text:

1.Rakesh, M. J. (2013). International Business, New Delhi,

Oxford University Press
The beverages you drink might be produced in India, but with the collaboration of
a USA company.

The tea you drink is prepared from the tea powder produced in Srilanka.

The television you watch might have been produced with Japanese technology.
But without going to this country

International business is the process of linking the

global resources with global people.
EVOLUTION
 Human civilization.

 Broader concept of integration of economies goes back to 19 th century.

 The first phase was took with the end of first World War in 1919. the import of raw materials by
colonial countries emperor from colonies and exporting them finished goods again to the colonies

 But after second world war in 1945, the most of the colonial governments refused to export the
raw materials and import finished goods for the purpose of protecting the domestic companies.
EVOLUTION

The consequences of World War II had made the

world countries to feel the need of international
co-operation of global trade which led to the
formation of various organizations like
International Monetary Fund (IMF) and
International Bank for Reconstruction and
Development(IBRD), now called AS World Bank.
NATURE OF IB

Globalization – is an attitude of mind –

it is a mindset which views the entire
world as a single market
NATURE OF IB

International Trade – International Marketing:

Originally, the producers used to export their products to the nearby countries and
gradually extended the export to far-off countries. Gradually the companies extended
the operations beyond trade.

International Marketing – International Business:

A true global companies views the entire world as a single market.
There is a great renovision, given by Arvindh Mills:
 Source raw material wherever they are cheapest.

 Manufacture wherever in the world is most cost effective.

 Sell in those markets where the prices are highest.

 Raise finance globally.

 ‘forge international strategy alliance.

• To manage all these, take the best talent from all over the world.
 INTERNATIONAL BUSINESS

•International Business is the process of focusing on the resources of the

globe and objectives of the organization on the global business opportunities

and threats in order to produce/buy/sell or exchange of goods and services

worldwide.
 NATURE OF INTERNATIONAL BUSINESS
 Large Scale Operations
Integration of Economies
Dominated by developed countries and MNCs
Benefits to participating countries
Keen Competition
Special role of science and technology
International Restrictions
 REASONS FOR INTERNATIONALIZATION
 To achieve a higher rate of profits

 Expanding the production capacity

 Severe competition in the home country

 Limited home market

 Political Stability v/s Political Instability

 Availability of Technology and Managerial Competency

 Nearness to Raw materials

 Availability of Quality HR at less cost

 To increase market share

 STAGES OF INTERNATIONALISATION
•Every company in the International Business will pass through the 5 different stages of
Internationalization. They are:

 Domestic Company

 International Company

 Multi-National Company

 Global Company

 Transnational Company
 Domestic Company
 Domestic Company limits its operations, mission, and vision to the national
boundaries.
 This company focuses its view on the domestic market opportunities, supplies,
and customers.
 These companies analyze the national environment of the country and formulate
strategies to exploit the opportunities offered by the environment.
 They never think of growing globally.

 They believe in saying, “If it is not happening in home country, it is not

happening”.
  Domestic Company examples

• Reliance Industries Limited.

• Indian Oil Corporation Limited.

• Tata Motors Limited.

• State Bank of India.

• Bharat Petroleum Corporation Limited.

• Hindustan Petroleum Corporation Limited.

• Oil and Natural Gas Corporation Limited.

• Tata Consultancy Services Limited.

  International Company

Extends the wings to the foreign countries.

These companies select the strategy of locating a branch in a foreign country
Those companies which decide to exploit the opportunities outside the domestic
country are stage – 2 companies.
  Multi-National Company

International companies turn into Multi-National companies when

they start responding to the specific needs of different country
markets regarding product, price, and promotion.
This stage is also referred to as Multi-Domestic companies.
These companies formulate different strategies for different markets.
  Global Company

•A global company is the one, which has either global

strategy.
•Global Company either produces in home country or in
a single country and focuses on marketing these products
globally or produces globally and focuses on marketing these
products domestically.
 Transnational Company

 It produces, markets, invests and operates across the world. It is

an integrated global enterprise that links global resources with
global markets at profits. There is no pure Transnational.
 Some well-known examples of TNCs include Coca-Cola,
Apple, McDonald's, and Nike. Some features of
transnational corporations are that they are large and have
centralized control based in their home countries.
• MNC s and India,

 List out any ten MNCs in India

 What do they have in common?

 What makes them successful?

 Where are they based ?

 Does everyone like these companies ?

 Positive and negative impact

• https://www.youtube.com/watch?v=MUSls2gDGQg
EPRG FRAMEWORK
• Why Walmart failed in Brazil ? - https://youtu.be/fFPMUIT9seg?t=2

• How China became KFCs Most Important market -

https://www.youtube.com/watch?v=cTFu2xtqnKQ

• Coca-Cola Commercial adapted according to three countries-

https://youtu.be/JD9fe0UQO2A?t=9

• Mr. Bharti Mittal himself on his views on Airtel

expanding into African territories -
https://youtu.be/zYfj2Pt4iN4?t=10
EPRG framework was introduced by Wind, Douglas and
Perlmutter focusing on International marketing operations.

It describes the different attitudes that the management of a

company has about International Markets.
• Ethnocentric Orientation

Under this orientation, the management beliefs that marketing

practices followed in the home country will succeed in the foreign
markets. No adaptation is required to launch a business into another
country.

The management is inclined over hiring top executives from home

country because they have a notion that domestic nationals have
more supremacy over driving the business.
• Example of Ethnocentric Orientation

• Nissan’s earliest exports from Japan were automobiles designed for

mild Japanese winters. When exported to USA, a company with
extreme winters, these vehicles were difficult to start.
• There were locations in Northern Japan where there were
comparatively chilled winters but the car owners here would put
blankets over car hoods. Nissan management assumed that even US
customers would do that.
• Nissan tried for a long time to design cars in Japan and shove it in the
US market. But all was for vain.
• Example of Ethnocentric Orientation

• when Walt Disney decided to venture into France with similar

marketing strategies as in US. The minister of culture in Paris
announced that the park be boycotted because it was an unwelcome
symbol of American Clichés and consumer society.
• At the same time there were political clashes between the US
government and French Farmer associations. There were operational
errors that existed.
• For instance, keeping their strategies similar to US, they had declared
this amusement parks to be alcohol-free. But this did not play very
well in country where a glass of wine for lunch is a given.
• Polycentric Orientation

• Under this approach believe that all markets

are different in nature and thus have
their different needs.

• There is complete autonomy for

subsidiaries to formulate their own
marketing and operational plans.

• There are executives from host countries who

carry out the decision making.
• Polycentric Orientation Examples

• McDonald’s is a prominent example of a firm following

polycentric approach. Having originated in USA, its menu in
USA is centered around their local preference which is beef
and meat. When coming to India, it realized that Indians are
culturally averse to eating beef. It not only took off his its
offering in beef but came up with vegetarian offerings for the
Indian subcontinent.
• European McDonalds often serves wine in addition to soft
drinks.
• There is a special Dutch cookie Mcflurry on the menu in
Netherlands.
• Polycentric Orientation Examples

• Another firm with its polycentric approach is google. Do you

care to notice the changing doodles each day! Rather than
attempting a single doodle worldwide, it adapts itself
according to different countries. There may be a different
person being honored in India and at the same time some
other festival being celebrated in USA.
• Regiocentric Orientation

• In this approach, the management is of the mindset that similar

countries that happen to exist in the same region are similar in

identity.

• This means that strategies that are developed for the home country

can work very well in these regional countries also.

• Regiocentric Orientation Examples

• Coca Cola has been using a regiocentric approach in formulating its

messages for a basket of countries which includes India, Pakistan and
Bangladesh.

• Goodyear International, the tire major also has clubbed various

countries with similar policies and economic landscape. Asia-Pacific is
one region, Europe is another and the rest of the world is divided into
Latin America, North America, Middle East and Africa.
• Geocentric Orientation

• Geocentric orientation is a truly global orientation. The management

with this mindset sees the whole world as a potential market.

• The management considers that there are minimal differences in

terms of marketing environment amongst different countries. Thus, it
is beneficial for a company to keep a ‘world Oriented’ view rather
than a country specific, multi-domestic approach.
• Geocentric Orientation

• Geocentric orientation is a truly global orientation. The management

with this mindset sees the whole world as a potential market.

• The management considers that there are minimal differences in

terms of marketing environment amongst different countries. Thus, it
is beneficial for a company to keep a ‘world Oriented’ view rather
than a country specific, multi-domestic approach.
• Geocentric Orientation Examples

KFC has a ‘vegetarian thali’ and a Chana snacker to cater to vegetarians

in India.

Viacom’s MTV channels are branded according to the country they are
operated in namely MTV India, MTC China, MTV Korea and many more.
It hires more people from these nationalities and plays according to
respective cultures.
• Theories of International Trade

International trade theories are the base for a person,

firm, and nation to understand how are international
trades or businesses.

They help to understand how is the international market,

what factors hinder companies from success, and how a
company will make its share in the international market.
• Theories of International Trade

Mercantalism

Absolute Advantage

Comparative Advantage

Factor Endowment Theory

Competitive Advantage Theory

 Mercantalism

• This trade theory prevailed during 16th to 19th centuries.

• The wealth of a nation is measured based on its accumulated wealth in terms of

gold and silver.

• Nations should accumulate wealth by encouraging exports and discouraging

imports.

• Theory of mercantilism aims at creating trade surplus and in turn accumulate

nation’s wealth.
Absolute Advantage
When one country can produce a unit of good with less cost than
another country, the first country has an absolute (cost)
advantage in producing that good.
• Example - In a hypothetical two-country world, if Country A
could produce a good cheaper or faster (or both) than Country B,
then Country A had the advantage and could focus on
specializing on producing that good. Similarly, if Country B was
better at producing another good, it could focus on specialization
as well.
• There is international benefit from trade – Everyone better off
without making anyone worse off.
• His theory stated that a nation’s wealth shouldn’t be judged by
how much gold and silver it had but rather by the living
standards of its people.
Comparative Advantage
• Nations can still gain from trade even without an absolute
advantage.
• Facilitator – Difference in opportunity cost.
• A country has a Comparative Advantage in producing a good if the
opportunity cost of producing that good in terms of other goods is
lower in that country compared to other countries.
• Comparative advantage focuses on the relative productivity
differences, whereas absolute advantage looks at the absolute
productivity.
Factor Endowment Theory
Here, factor endowment refers to the richness or easy availability

of basic production factors like land, labor, and capital to a nation.

This model suggests that a nation should specialize its production

in products which it has an abundance of production factors.

This theory assumes factors relative to abundance are cheaper and

factors relative to scarcity are expensive to a nation.

Factor Endowment Theory
According to this theory, if India, China, Nepal, etc. are
rich in labor factors then they should produce labor-
intensive products. And, USA, Japan, etc. are rich in
capital they should produce capital-intensive products.
 In this way, capital-rich countries should import labor-
intensive products, and labor-rich countries import
capital-intensive products as such international trade
takes place.
Competitive Advantage Theory
• Michael Porter 1990, introduced the national competitive advantage theory
which explains why a nation succeeds in international competition.

• He wanted to address what makes a firm achieve a competitive advantage in a

nation or a nation in a particular industry.

• With research in 100 industries in 10 countries, he identified four factors that

help a firm to gain a national competitive advantage which he introduced as
Porter’s Diamond. And, after achieving it such factors also strengthen the
exporting capacity of the firm.
Competitive Advantage Theory
• The Porter’s Diamond is shortly mentioned below:
• Demand Conditions – Stronger the demand of a domestic market the
more high-quality products would be produced and exporting may be
attained.
• Factor Endowments – A nation having better production factors
would do better in the international market.
• Related and Supporting Industries – E.g. schools are the supporting
institutions for universities.
• Firm Structure, Strategy, and Rivalry – The better the firm’s strategy
and structure the better the firm will win against rivalries.
Introduction to Political, Economic, Social-Cultural &
technological environment of international business.