What is International Business?

International business is all commercial transactions (private/Governmental)

between two countries.

OR

When business activities are performed on an international level, these can be

termed as international business.

OR

International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations

OR

International business includes any type of business activity that crosses national borders.

OR

international business is defined as organization that buys and/or sells goods and services across two or more national boundaries, even if management is located in a single country.

OR

ECONOMIC TRANSACTION.

TWO COUNTRIES / ACROSS NATIONAL BOUNDRIES.

FEATURES:

Operating units outside the country

Institutional arrangement

Massive in scale

Influence political,social and economic development.

GROWING IMPORTANCE:

Interdependence

Intense competition

Globalization

Price difference

Development in ICT.

INTERNATIONAL BUSINESS VERUS DOMESTIC BUSINESS:

DIFFERENT LEGAL SYSTEMS.

Different political systems

Different social environment

Different currencies

Different business practices

Different technology

Wider market

High transportation cost

Higher counter party risk.

Need for International Business:

1. More and more firms around the world are going global, including:

1. Manufacturing firms

2. Service companies (i.e. banks, insurance, consulting firms)

3. Art, film, and music companies

2. International business:

1. causes the flow of ideas, services, and capital across the world

2. offers consumers new choices

3. permits the acquisition of a wider variety of products

4. facilitates the mobility of labor, capital, and technology

5. provides challenging employment opportunities

6. reallocates resources, makes preferential choices, and shifts activities to a

global level

To achieve higher rate of profits

Expanding the production capacity beyond the demand of the domestic country

Severe competition in the home country

Limited home marketPolitical conditions

Availability of technology and managerial competence

Cost of manpower, transportation

Nearness to raw material

Liberalisation, Privatisation and Globalisation (LPG)

To increase market share

Increase in cross border business is due to falling trade barriers (WTO), decreasing

costs in telecommunications and transportation; and freer capital markets

Nature of International Business

1. Accurate Information

2. Information not only accurate but should be timely

3. The size of the international business should be large

4. Market segmentation based on geographic segmentation

5. International markets have more potential than domestic markets

Scope of International Business

1. International Marketing

2. International Finance and Investments

3. Global HR

4. Foreign Exchange

TYPES OF INTERNATIONAL BUSINESS:

EXPORT-IMPORT TRADE

FOREIGN DIRECT INVESTMENT

LICENSIng

FRANCHISING

MANAGEMENT CONTRACTS

Recent Changes in International BusinessTotal world trade declined dramatically after 2000, but is again on the rise.The rate of globalization is accelerating.Regionalization is taking place, resulting in trading blocs.The participation of countries in world trade is shifting.

Importance of international business

Every company is trying to expand its business by entering foreign markets.

International business helps in the following ways:-

1. Helps as growth strategy: - Geographic expansion may be used as a

business strategy. Even though companies may expand their business at

home.

2. Helps in managing product life cycle: - every product has to pass through

different stages of product life cycle-when the product reaches the last stages

of life cycle in present market, it may get proper response at other markets.

3. Technology advantages: - some companies have outstanding technology

advantages through which they enjoy core competency. This technology

helps the company in capturing other markets.

4. New business opportunities: - business opportunities in overseas markets

help in expansion of many companies. They might have reached a saturation

point in domestic market.

5. Proper use of resources: -Sometimes industrial resources like labor,

minerals etc. are available in a country but are not productively utilized.

6. Availability of quality products: - when markets are open, better quality

goods will be available every where. Foreign companies will market latest

products at reasonable prices. Good product will be available in the markets.

7. Earning foreign exchange: - international business helps in earning foreign

exchange which may be used for strategic imports .India needs foreign

exchange to import crude oil, deface equipment, raw material and machinery.

8. Helps in mutual growth: - countries depend upon each other for meeting

their requirements. India depends on gulf countries for its crude oil supplies.

9. Investment in infrastructure: - international business necessitates proper

development of infrastructure. A company entering international business

must invest in roads.

Complexities involved in international business

International business by multinational so the complexities are also related to

their working. Some of these complexities are discussed as follow:-

1. Controlling the market:- multinational try to control the market of the host

country. Whenever they enter a new country, the first strategy is to eliminate

the competitors either by taking over their business or forcing them out of

market by following price reduction policies.

2. Exhausting natural resources: - multinational corporations set up their

production facilities in those countries where natural resources are available

in sufficient quantities.

3. Importance to luxuries: - multinational corporations enter those areas where

margin of profits is high.

4. Trade practices:- since multinational corporations have their head office in

one country and the trade practices followed there are adhered to.

5. Economic development: - it is generally felt that the entry of businessmen

from outside may help in the economic development of that country . The

actual practice in many countries is different.

6. Shifting of investment: - international business is related to profitability of its

operations. If a business is getting sufficient profits in a particular country then

the investment remain there.

SPECIAL DIFFICULTIESIN INTERNATIONAL BUSINESS

What make international business strategy different from the domestic are

the differences in the marketing environment.The important special problems

in international marketing are given below:

1. POLITICAL AND LEGAL DIFFERENCES The political and legal

environment of foreign markets is different from that of the domestic.The

complexity generally increases as the number of countries in which a

company does business increases.It should also be noted that the political

and legal environment is not the same in all provinces of many home

markets.For example, the political and legal environment is not exactly the

same in all the states of India.

2. CULTURAL DIFFERENCES The cultural differences, is one of the most

difficult problems in international marketing.Many domestic markets, however,

are also not free from cultural diversity.

3.ECONOMIC DIFFERENCES The economic environment may vary from

country to country.

4.DIFFERENCESIN THE CURRENCY UNIT The currency unit varies from

nation to nation.This may sometimes cause problems of currency

convertibility, besides the problems of exchange rate fluctuations.The

monetary system and regulations may also vary.

5. DIFFERENCESIN THE LANGUAGE An international marketer often

encounters problems arising out of the differences in the language.Even when

the same language is used in different countries, the same words of terms

may have different meanings.The language problem, however, is not

something peculiar to the international marketing.For example:the multiplicity

of languages in India.

6. DIFFERENCESIN THE MARKETING INFRASTRUCTURE The availability

and nature of the marketing facilities available in different countries may vary

widely.For example, an advertising medium very effective in one market may

not be available or may be underdeveloped in another market.

7. TRADE RESTRICTIONS A trade restriction, particularly import controls, is

a very important problem, which an international marketer faces.

8. HIGH COSTSOF DISTANCE When the markets are far removed by

distance, the transport cost becomes high and the time required for affecting

the delivery tends to become longer. Distance tends to increase certain other

costs also.

9. DIFFERENCESIN TRADE PRACTICES Trade practices and customs may

differ between two countries

advantages:

survival

standard of living

GROWTH OF OVERSEASMARKETs

SALESAND PROFIT

DIVERSI FICATION

EMPLOYMENt

International Trade Theories

1. Mercantilisms theory

The foundation of the theory dates back to nearly 500 years ago

The theory focused on increasing trade surplus – which meant

increasing treasure (normally in form of gold) During colonial rule the

theory was used to benefit colonial power. Colonies were forced to

import costly finished /manufactured goods from the ruling country and

export the raw material at cheap price.

Now instead of treasure (gold ) the country with the trade surplus holds

the currency of the country with the trade deficit (- or investments in the

currency). In other words it grants credit to the country with deficit trade

– this of advantage only if it oods/services with the credit.

Neo-mercantilism seeks to achieve social and political objectives by

trade surplus

Absolute advantagism

Adam Smith proposed that consumer in a country will benefit by buying

foreign products if they are cheaper than domestic ones.

What the theory implies is – every country will specialise in producing

those items that give it competitive advantage.

The specialisation will make the labour more efficient in producing

those items. Economy of scale will also help them in producing those

items at lower cost.

The competitive advantage is either – natural OR ACQUIRED.

Natural advantagism theory

Natural advantage can be due to

- natural resources available. Eg:- availability of petroleum in middle

eastern countries.

- climate. Eg:- climate helps in the production of tea in north east india.

- land fertility and suitability. Eg:- jute in Bangladesh.

Companies can gain by processing the raw agricultural product and

convert it to a form that is more efficiently and economically transported

– thus save transportation cost.

4. Acquired advantage theory

Certain countries have acquired the skill and technology to produce

certain items better than others . Eg:- Japanese in producing steel and

electronic goods .

Comparative advantage theory:

A country must choose to produce the items it produces best and

import the rest even if it has absolute advantage in all the products –

this is justifiable due to allocation of limited resources.

Limitations of the theory lies in its assumption of full utilisation of its

resources. Eg:- Full employment may not be a valid assumption

- Another reason why the strategy advocated by this theory may not

be totally satisfactory – for the risk associated with over specialisation

in certain items and overdependence on imports of certain items.

- The other limitations of the theories of specialisation are: sharing of

gains between the countries may be a point of dispute.

- Transort cost may offset the benefits of specialisation.

- Resources are not as mobile as the assumes.

Theory of country size

Larger countries ( in terms of land) are likely to have more variety of

resources than smaller ones. So they are more self sufficient hence

trade less.

The transportation cost of procuring items from neighbouring countries

is higher than processing it from a domestic source within the country.

Domestic demand is often large enough for an economic scale of

production.

7. Factor Proportion theory

According to this theory the factors ( of production) which are

more in existence are cheaper while the scarcer factors are

costlier.

- The production factors are – labour land and capital.

Countries produce items requiring the factors available with them (- how ever

technology also decides the amount of the factors required for a given output

Product life cycle theory of trade

Phases of ‘Product life cycle’ are 1. Introduction 2. Growth 3. Maturity

4. Decline.

The production starts in the country where the product was first

researched and developed. These countries are always industrialised

and advanced.

Then the product shifts to other countries ( developing countries) as the

product reaches the stage of maturity in the country where it originated.

Some exception to the PLC theory of trade are –

(a) When products have very short cycles because of rapid innovation.

(b) Products where the cost is of little concern to the customer

(c) Products requiring specially skilled labour – which takes time to develop.

Reasons for Recent International Business Growth

. 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

Problems in International Business

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

Features of international business:

Large scale operations : In international business, all the operations are conducted on

a very huge scale. Production and marketing activities are conducted on a large scale. It first

sells its goods in the local market. Then the surplus goods are exported.

Intergration of economies : International business integrates (combines) the economies

of many countries. This is because it uses finance from one country, labour from another

country, and infrastructure from another country. It designs the product in one country,

produces its parts in many different countries and assembles the product in another country. It

sells the product in many countries, i.e. in the international market.

Dominated by developed countries and MNCs : International business is dominated by

developed countries and their multinational corporations (MNCs). At present, MNCs from

USA, Europe and Japan dominate (fully control) foreign trade. This is because they have

large financial and other resources. They also have the best technology and research and

development (R & D). They have highly skilled employees and managers because they give

very high salaries and other benefits. Therefore, they produce good quality goods and

services at low prices. This helps them to capture and dominate the world market.

Benefits to participating countries : International business gives benefits to all

participating countries. However, the developed (rich) countries get the maximum benefits.

The developing (poor) countries also get benefits. They get foreign capital and technology.

They get rapid industrial development. They get more employment opportunities. All this

results in economic development of the developing countries. Therefore, developing

countries open up their economies through liberal economic policies.

Keen competition : International business has to face keen (too much) competition in the

world market. The competition is between unequal partners i.e. developed and developing

countries. In this keen competition, developed countries and their MNCs are in a favourable

position because they produce superior quality goods and services at very low prices.

Developed countries also have many contacts in the world market. So, developing countries

find it very difficult to face competition from developed countries.

Special role of science and technology : International business gives a lot of importance

to science and technology. Science and Technology (S & T) help the business to have large-

scale production. Developed countries use high technologies. Therefore, they dominate

global business. International business helps them to transfer such top high-end technologies

to the developing countries.

International restrictions : International business faces many restrictions on the inflow

and outflow of capital, technology and goods. Many governments do not allow international

businesses to enter their countries. They have many trade blocks, tariff barriers, foreign

exchange restrictions, etc. All this is harmful to international business.

Sensitive nature : The international business is very sensitive in nature.

Any changes in the economic policies, technology, political environment, etc.

has a huge impact on it. Therefore, international business must

conduct marketing research to find out and study these changes. They must

adjust their business activities and adapt accordingly to survive changes.

Meaning of international business environment

Intrenational business enviorment is combination of

intrenational+business+enviorment=IBE.

Firstly meaning of international

It mean that between the two or more nation

2nd Business

It include the all economics activies ,perform by the individual or a

group ,which is related to production of goods or services for the

purpose of earn profit .

3rd Env

Env means that total set of sorrounding.those are around togather is know as env.

Meaning of ibe

It mean that the enviourment which is related to international business is

known as a i.b.e.

I.B means the business between the two or more countries./amongst

countries.

IN other word the factor affect/ influncing the business

Environmental impact of factors in International business: Cultural, political, legal and economic

CULTURE AND SOCIAL ENVIRONMENT:( NOTE BOOK ALSO)

Social and culture env factor in various of the global effect the I.B. It include,

attitude of the people of the work , wealth ,family size, marriage, education,

religions, human responsiblties, etc.

Culture

Is the thought and behaivour pattern member and society learn through

languages and other form coustm ,habbits norms,value.

Culture can be defined a s a "sum of total knowledge, beliefs, art, morals,

laws, customs and any other capabilities and habits acquired by man as a

member of society.

“ It is a distinctive way of life of a group of people, their complete design of

living.

Culture thus refers to a man's entire social heritage - a distinctive life

style of a society and its total value system which is intricately related to the

consumption pattern of the people and management philosophies and

practices.

EXAMPLE OF CULTURE IS : different dressing style in christen weeding nd

indian weeding (explain krna hai)

Symbol examples:

a) FOOD Vegetarian food – large cultures in India

Sea foods – for subcultures in the Far East

Avoidance of beef – by Hindus and Sikhs

b) CLOTHING :

By sheer logic, clothing preference should depend on climate and weather. The

preferences in these cases appear to be culturally inherited.

c.) HOUSING: cultural influences effect the choice of location, material, construction

of the houses 

characterstics of culture

1. Culture is prescriptive. It prescribes the kinds of behavior considered acceptable in

the society.

2. Culture is socially shared. Culture, out of necessity, must be based on

social interaction and creation. It cannot exist by itself. It must be shared

by members of a society, thus acting to reinforce culture’s prescriptive

nature.

3. Culture facilitates communication. Culture usually imposes common habits

of thought and feeling among people. Thus, within a given group culture

makes it easier for people to communicate with one another.

4. Culture is learned. Culture is not inherited genetically-it must be learned

and acquired. Socialization or enculturation occurs when a person absorbs

or learns the culture in which he or she is raised. In contrast, if a person

learns the culture of a society other than the one in which he or she was

raised, the process of acculturation occurs.

5. Culture is subjective. People in different cultures often have different ideas

about the same object. What is acceptable in one culture may not

necessarily be so in another.

6. Culture is enduring. Because culture is shared and passed along from

generation to generation, it is relatively stable and somewhat permanent.

Old habits are hard to break, and people tend to maintain its own heritage

in spite of a continuously changing world. (why India and China, despite

severe overcrowding, have a great difficulty with birth control)

7. Culture is cumulative. Culture is based on hundreds or even thousands of

years of accumulated circumstances. Each generation adds something of

its own to the culture before passing the heritage on to the next

generation.

8. Culture is dynamic. Culture is passed along from generation to

generation, but one should not assume that culture is static and immune to

change. Far from being the case, culture is constantly changing-it adapts

itself to new situations and new sources of knowledge.

Cultural Dimensions:

Meaning of Time:

Workweek in Middle East

punctuality

Language of friendship

Dinner Invitation in India :real friendship

In china : social gathering

USA : dinner is a necessity

Culture also affects what should not be purchased. Muslims do not

buy Pork/ do not smoke or drink.

Technological Environment

Relationship between business and technology exist

Technology is systematic application of scientific or other organized

knowledge to practical task.

Technology feed itself. Technology makes more technology possible

Social Impact of Technology:

Technology reaches people through business

High expectation of consumer

System complexity

Social change

Technological Phases

Need to Spend on Research & Development

Technology transfer

Jobs tend to become more intellectual

Problem of techno structure : ESOP

Need for multi professional

Increased regulation & stiff opposition

Rise and decline of product & organization

Insatiable demand of capital

The Economic Environment

This element comprises the nature of the economic system and institutions of

a particular country or region. It also takes into account the nature of human

and natural resources within the target market. A firm will function very

differently in a libertarian environment than within a highly statist one. Here,

the activities and functions of local economic elites are also very important.

Features of an Economy

GDP

Inflation

Unemployment

Debt

Income distribution

Poverty

Labor costs

Productivity

Balance of payments

Elements of the Economic Environment

GDP: the total value of all final goods and services produced in a country in a given

year equal to total consumer, investment, and government spending, plus the value

of exports, minus the value of imports.

Inflation : rise in the general level of prices of products over a period of time. Thus, it

is a measure of the increase in the cost of living

Unemployment is a measure of the number of workers who want to work but do not

have jobs

Including other economic factors:

All these factors need to be considered in any global business venture:

Tax Systems

Investment Considerations and Allowances

Commodity Prices – oil, energy, metals

Monetary and Fiscal Policies – interest rates, tax regimes, government aid

Internal Regulation and Bureaucracy – can be stifling!

Exchange Rates

Economic policy refers to the actions that governments take in the economic field. It

covers the systems for setting interest rates and government budget as well as the

labor market, national ownership, and many other areas of government interventions

into the economy.

Trade policy, which refers to tariffs, trade agreements and the international

institutions that govern them

Tax policy: The taxes used to collect government income

fiscal policy is the use of government revenue collection (taxation) and expenditure

(spending) to influence the economy.

Monetary policy is the process by which the monetary authority of a country controls

the supply of money, often targeting a rate of interest for the purpose of promoting

economic growth and stability

What are the different economic systems?

There are three types of economic systems

Capitalist (Market allocation of resources) system

Socialist ( Command allocation of resources) system

Mixed system

Market allocation

Consumer allocates the resources. Consumer with his monetary strength decides

the goods/services that he wants.

Command allocation

Product , technology is decided by the state.

Generally demand exceeds supply so market mix is relevant

Countries relying on this system are generally shifting towards market

allocation system

Mixed system : In reality all market allocation systems are mixed because

Government spending is a command allocation.

Economic conditions: Status of a country's financial position at a specific period of

time. May be defined through use of statistics involving unemployment rates, stock

market data, and GDP information, among other metrics.

Prosperity Phase ( Expansion or Boom or Upswing of economy.)

When there is an expansion of output, income, employment, prices and profits, there

is also a rise in the standard of living. This period is termed as Prosperity phase.

Recession Phase : from prosperity to recession (upper turning point)

The turning point from prosperity to depression is termed as Recession Phase.

During a recession period, the economic activities slow down. When demand starts

falling, the overproduction and future investment plans are also given up.

Depression Phase : Contraction or Downswing of economy.

When there is a continuous decrease of output, income, employment, prices and

profits, there is a fall in the standard of living and depression sets in.

Recovery Phase : from depression to prosperity (lower turning Point).

The turning point from depression to expansion is termed as Recovery or Revival

Phase.During the period of revival or recovery, there are expansions and rise in

economic activities. When demand starts rising, production increases and this

causes an increase in investment. There is a steady rise in output, income,

employment, prices and profits. The businessmen gain confidence and become

optimistic (Positive). This increases investments.

The Political Environment

Closely tied to the economic environment is the political one, itself also dealing with

the nature of systems and institutions. Many variables to consider here are the

stability of the political system, the existence of local or international conflict, the role

of state enterprises and the nature of the bureaucracy

It is rightly said that a foreign business firm operates only as a guest and at the

convenience of the host country government.

The government reserves the right of allowing a foreign firm to operate in the country

as well as laying down the manner in which a foreign firm can conduct business.

Political system ( from note book)

Political risk (from note book also)

The risk that political decisions or events in a country negatively affect the

profitability or sustainability of an investment

Types:

Systemic

Procedural

Distributive

Catastrophic

Systemic Risks—risks that impact all firms who operate in the particular

political system. Example= recently exam is INDIA Vs PAKISHT ANd INDIA

Vs CHINA

Procedural Risk—Each day, people, products, and funds move from point to

point in the global market. Each move creates a procedural transaction

between the units involved, whether units of a company or units of a country.

Political actions sometimes create frictions that interfere with these

transactions.

Distributive Risk—As foreign investors generate more profits in the local economy,

the host country may begin to question the distributive justice of the rewards of

operating in its market. In other words, as the business grows more successful,

officials may question whether they are receiving their “fair” share of the growing

profits

Catastrophic Risk—includes random political developments that adversely affect the

operations of every company in a country.

Political Stability:

Stability of the government and government policies are a major concern for

the international firm.

Since business decisions, these days involve huge investments and are

irreversible, what the foreign firms look in for is politically stable countries.

Political instability can result from either change in the type of government, a

shift in political parties that form the government or change in the government

policies without change in the government or shifts in political parties.

LEGAL ENVIRONMENT

Every business firm operates within the jurisdiction of legal system.

This is true of domestic as well as international firms.

But the problem for the international firms is that the laws that they face in

their home countries might be different from those encountered in the host

countries.

Different laws exist in different countries not only in the area of marketing mix

variables but also for other business decisions like location of plant, level of

production, employment of people, raising money from the market, accounting

and taxation, property rights including immovable property and patent and

trade marks, cancellation of agreements

Legal environment affects international business:

1. Laws (FROM NOTE BOOK)

2. Legal issues

3. Dispute settlement.( FROM NOTE BOOK)

LEGAL ISSUES:

Establishment of trade :

- Trade can be established only when conditions are

suitable for its growth, in a target country. It can

survive and grow if there is an assurance that foreigners will be

treated fairly. In order to ensure this

treaties are signed between countries regarding

commerce and navigation.

Companies are guided both by the laws of the host

country and the home country. ( Eg: Bribery laws of the

US is applicable to all the US MNCs operating in other

countries)

Jurisdiction:

- The company should clearly understand the extent to which it is subject to the

jurisdiction of host country courts. Normally, all the economic activity within a nation

in governed by the nation’s laws. But which nation’s laws apply when a transaction

crosses boundaries/ The parties involved must clarify such points at the point of

making the deal. The contract must specify these points, to take care of any conflict

of laws arising later.

3. Intellectual property rights :

Various types of disputes can arise over issues related to trade marks and

patents like –

- Counterfeiting is unauthorised copying and production of a product.

- Associative counterfeit is an imitation with slight variation in the product

name (a well known brand name) to dupe the customer.

- Piracy is unauthorised publication of a copy right (particularly software and

entAntitrust :

Antitrust laws are intended to promote free competition. But at times the

laws in the host country may go contrary to the basic principle of ‘Antitrust’, with an

objective to provide protection to local manufactures.

5. Licensing and Trade secrets:

Licensing is a contract that allows a licensee to use patents, trademarks,

trade secrets, technology against royalty payments. In certain countries the

permissible amount of royalties is governed by the government.

Disputes arise if the license agreement not clearly specify the scope ( to

make/ use/ sell) of the license, the method of pricing the assets, the rights to

sublicense etc. Disputes also arise due to misinterpretation of the

agreement.ertainment industries)

ECOLOGICAL ENVIRONMENT

Ecology refers to the pattern and balance of relationships between plants,

animals, people and their environment.

Earlier there was hardly any concern for the depletion of resources and

pollution of the environment.

Smoke stemming from the chimneys and the dust and grime associated with

factories were accepted as a necessary price to be paid for the development.

But in recent years, the magnitude and nature of the 'pollution overload' have

assumed such alarming proportions that pressures have built up all over the

world to do something urgently lest the situation gets out of control

Very recently, the United States government imposed a ban on exports of

marine products from countries including India which did not have special

devices fitted into fishing trawlers to free the tortoises trapped during fishing

expeditions.

Similarly, restrictions have been put on garment exports using cloth

processed through the use of AZO dyes.

Germany today is perhaps the country with most stringent environmental laws

in the world. The concept of industrial progress and development has also

undergone paradigm shifts.

Corporations today are judged in terms of not only financial returns, but also

conservation of environmental resources and reduction in pollution levels.

Green technologies, green products and green companies are highly valued

in today's global market place.