international business management unit i
DESCRIPTION
UNIT 1TRANSCRIPT
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UNIT I
INTERNATIONAL BUSINESS
Meaning
International business is a term used to collectively describe all commercial transactions
(private and governmental, sales, investments, logistics, and transportation) that take place
between two or more regions, countries and nations beyond their political boundary. Usually,
private companies undertake such transactions for profit; governments undertake them for profit
and for political reasons. It refers to all those business activities which involve cross border
transactions of goods, services, resources between two or more nations. Transaction of economic
resources include capital, skills, people etc. for international production of physical goods and
services such as finance, banking, insurance, construction etc.
International Business conducts business transactions all over the world. These
transactions include the transfer of goods, services, technology, managerial knowledge, and
capital to other countries. International business involves exports and imports.
International Business is also known, called or referred as a Global Business or an
International Marketing.
Definition
The exchange of goods and services among individuals and businesses in multiple
countries.
A specific entity, such as a multinational corporation or international business company
that engages in business among multiple countries.
An international business has many options for doing business, it includes,
1. Exporting goods and services.
2. Giving license to produce goods in the host country.
3. Starting a joint venture with a company.
4. Opening a branch for producing & distributing goods in the host country.
5. Providing managerial services to companies in the host country.
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Features of International Business
The nature and characteristics or features of international business are:-
1. 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.
2. 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.
3. 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.
4. 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.
5. 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
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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.
6. Special role of science and technology :
International business gives a lot of importance to science and technology. Science and
Technology 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.
7. 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.
8. 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.
INTERNATIONALIZING BUSINESS
Definition
The process leading to identifying and entering international markets or a process of
increasing involvement of enterprises in international markets.
In real terms: Usually implemented by:
Firms acting alone – set up subsidiary (sales & production) by buying an existing
company or creating a new one.
Firms acting with others – establish strategic alliance with one or more partners (local or
internatonal).
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Advantages of Internationalization
Benefits of going International
Spreading business risk.
Opportunity to exploit an existing competitive edge in new markets.
Expansion of brand awareness to new audiences.
Increased revenue generation.
Possibility of accessing new technologies / information.
Business can be conducted via the internet thus shortening the communication channels
between customers and markets.
Disadvantages of Internationalization
Factors that could adversely affect overseas operating activities:
Cultural and language barriers.
Exchange rate fluctuations.
Religious beliefs.
Government regulations / policy on profit repatriation.
Political instability.
Economic downturn.
FACTORS CAUSING GLOBALIZATION OF BUSINESS
Meaning
Business globalization means companies and businesses have begun their trade and
production on international arena. Businesses are shifting their boundaries from domestic to
international ones.
Physical and societal factors
Political policies and legal practices
Cultural factors
Economic forces
Geographical influences
Competitive factors
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Major advantage in price, marketing, innovation, or other factors.
Number and comparative capabilities of competitors
Competitive differences by country
Local taxes
The main and important causes for the recent business globalization are:
Increase in global competition.
Rapid increase and expansion of technology.
Liberalization of cross border movement and
Development of supporting services.
The pressure of increased foreign competition can force a company to expand its business
into international market. Now day’s companies can respond rapidly to many foreign sales
opportunities. They can exchange production quickly among countries if they are experienced in
foreign market and because they can transport goods efficiently from one place to other.
The pace of the technology advances has accelerated to greater heights and the knowledge of
product and services is available more quickly and due to communication and transportation
technology. By increasing the demand of new products and services, Technology has tremendous
impact on International business as the demand increases and so do the number of International
business transactions.
There has been growth in globalization in recent decades due to the following eight factors:
Technology is expanding, especially in transportation and communications.
Governments are removing international business restrictions.
Institutions provide services to ease the conduct of international business.
Consumers know about and want foreign goods and services.
Competition has become more global.
Political relationships have improved among some major economic powers.
Countries cooperate more on transnational issues.
Cross-national cooperation and agreements.
INTERNATIONAL BUSINESS ENVIRONMENT
International business environment operates in different countries, varied cultures, and
under disparate political- legal environments. The environment of international business is
regarded as the sum total of all the external forces working upon the firm as it goes about its
affairs in foreign and domestic markets.
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Need for International Business
• More and more firms around the world are going global, including:
– Manufacturing firms
– Service companies (i.e. banks, insurance, consulting firms)
– Art, film, and music companies
• International business:
– causes the flow of ideas, services, and capital across the world
– offers consumers new choices
– permits the acquisition of a wider variety of products
– facilitates the mobility of labor, capital, and technology
– provides challenging employment opportunities
– reallocates resources, makes preferential choices, and shifts activities to a global
level.
International Business Meaning
International business consists of transactions that are devised and carried out across
national borders to satisfy the objectives of individuals, companies, and organizations.
Global Business Environment
Culture Environment
Culture is an integrated system of learned behavior patterns that are characteristic of the
members of any given society.
Elements of Social and Culture
Language (verbal and nonverbal)
Religion
Values and Attitudes
Manners and Customs
Material Elements
Education
Social Institutions
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Political Environment
The Home Country Perspective
Major areas of governmental activity that are of concern to the international business
manager:
– Embargoes and Sanctions
– Export Controls
– Regulation of International
– Business Behavior
Host Country Political and Legal Environment
Political Action and Risk - Varies widely from country to country.
Three Types of Political Risk
o Ownership Risk
Exposes property and life
o Operating Risk
Interference with the ongoing operations of a firm
o Transfer Risk
Limitations on the outflow of funds
Political Risk May Involve
• Confiscation
– The government takeover of a firm without compensation to the owners.
• Expropriation
– A form of government takeover in which the firm’s owners are compensated.
• Domestication
– The government demands transfer of ownership and management responsibility.
Economic Risk
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o Less dangerous, but more common
Economic Environment
• Economic Size
• Economic Systems
• Key Macroeconomic Indicators
• Economies in Transition
COUNTRY ATTRACTIVENESS
Two broad implications for IB-
Political, economic, and legal systems of a country raise important ethical issues that
have implications for the practice of international business.
The political, economic, and legal environment of a country clearly influences the
attractiveness of that country as a market and/or investment site.
Country attractiveness analysis
1. A country attractiveness assessment is based on two dimensions
• Market and industry opportunities.
•Country risks (many organizations publish country assessment results based on various
economic / political / social factors).
2. Market opportunities
Market opportunities assessment measures the potential demand in the country for a
firm’s products or services based on:
•Market size
•Growth
•Quality of demand.
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3. Industry opportunities
Industry opportunities assessment determines profitability potential of a company’s
presence in a country given the following factors:
•Quality of industry competitive structure
•Resource availability
4. Country risk
• Political risks
Political risks are probable disruption so wing to internal or external events or regulations
resulting from political action of governments or societal crisis and unrest.
• Economic risks
Economic risks expose business performance to the extent that the economic business
drivers can vary and therefore put profitability at stake.
• Competitive risks
Competitive risks are related to non-economic distortion of the competitive context to
wing to cartels and networks as well as corrupt practices. The competitive battlefield is not even
and investors who base their competitive advantage on product quality and economics are at
disadvantage.
• Operational risks
Operational risks are those that directly affect the bottom line, either because
government regulations and bureaucracies add costly taxation or constraints to foreign investors
or because the infrastructure is not reliable.
Figure of Country Attractiveness
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PROTECTION VS LIBERALIZATION OF GLOBAL BUSINESS ENVIRONMENT
Sustainable development, international law and environmental protection
In terms of environmental protection, the most potentially far-reaching aspect of
sustainable development is that for the first time it makes a states management of its own
domestic environment a matter of international concern in a systematic way (Bernie and Boyle
2002). Despite this however, the various social, political and economic value judgements in
determining what is sustainable has made it difficult for an international court to review national
legislation and conclude that it falls short of a standard of ‘sustainable development’ (Bernie and
Boyle 2002).
Overall
Attractiveness
Benefits
Size of Economy
Likely Economic
Growth
Costs
Corruption
Lack of infrastructure
Legal Costs
Risks
Political –Social unrest/Anti business trend
Economic – Economic mismanagement
Legal – Failure to safeguard property rights
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While international law may not require development to be sustainable, it does require
that decisions made about economic development be the outcome of a process that promotes
sustainable development. In order to achieve sustainable development, states are encouraged to
implement the main elements employed by the Rio Declaration and other instruments for
facilitating sustainable development. The conducting of Environmental Impact Assessments
(EIAs), public participations, integrating of development and environmental considerations and
the inclusion of inter- and intra-generational equity in decision-making are some of the elements
required to achieve sustainable development.