MBA-IB International Business EnvironmentUnit I 1
UNIT –IINTERNATIONAL BUSINESS–AN OVERVIEWContent Outline
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Introduction
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Definition and meaning of international business
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Scope of international business
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Special difficulties in international business
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Benefits of international business
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Understanding of international business environment
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Framework for analyzing the international business environment
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Summary
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Review Questions
INTRODUCTION
One of the most dramatic and significant world trends in the past two decadeshas been the rapid, sustained growth of international business. Markets havebecome truly global for most goods, many services, and especially for financialinstruments of all types. World product trade has expanded by more than 6percent a year since 1950, which is more than 50 percent faster than growth of output the most dramatic increase in globalization, has occurred in financialmarkets. In the global forex markets, billions of dollars are transacted each day,of which more than 90 percent represent financial transactions unrelated to tradeor investment. Much of this activity takes place in the so-called Euromarkets,markets outside the country whose currency is used.This pervasive growth in market interpenetration makes it increasingly difficultfor any country to avoid substantial external impacts on its economy. Inparticular massive capital flows can push exchange rates away from levels thataccurately reflect competitive relationships among nations if national economicpolicies or performances diverse in short run. The rapid dissemination rate of
MBA-IB International Business EnvironmentUnit I 2new technologies speeds the pace at which countries must adjust to externalevents. Smaller, more open countries, long ago gave up illusion of domesticpolicy autonomy. But even the largest and most apparently self-containedeconomies, including the US, are now significantly affected by the globaleconomy. Global integration in trade, investment, and factor flows, technology,and communication has been tying economies together.Why then are these changes coming about, and what exactly are they? It is inpractice, easier to identify the former than interpret the latter. The reason is thatduring the past few decades, the emergence of corporate empires in the worldeconomy, based on the contemporary scientific and technological developments,has led to globalization of production. As a result of international production,co-operation among global productive units, the large-scale capital exports, “theexport of production” or “production abroad” has come into prominence asagainst commodity export in world economy in recent years. Globalcorporations consider the whole of the world their production place, as well astheir market and move factors of production to wherever they can optimally becombined. They avail fully of the revolution that has brought about instantworldwide communication, and near instant-transformation. Their ownership istransnational; their management is transnational. Their freely mobilemanagement, technology and capital, the modern agent for stepped-up economicgrowth, transcend individual national boundaries. They are domestic in everyplace, foreign in none-a true corporate citizen of the world. The greaterinterdependence among nations has already reduced economic insularity of thepeoples of the world, as well as their social and political insularity.
DEFINITION OF INTERNATIONAL BUSINESS:
International business includes any type of business activity that crosses nationalborders. Though a number of definitions in the business literature can be foundbut no simple or universally accepted definition exists for the term international
MBA-IB International Business EnvironmentUnit I 3business. At one end of the definitional spectrum, international business isdefined as organization that buys and/or sells goods and services across two ormore national boundaries, even if management is located in a single country. Atthe other end of the spectrum, international business is equated only with thosebig enterprises, which have operating units outside their own country. In themiddle are institutional arrangements that provide for some managerial directionof economic activity taking place abroad but stop short of controlling ownershipof the business carrying on the activity, for example joint ventures with locallyowned business or with foreign governments.In its traditional form of international trade and finance as well as its newestform of multinational business operations, international business has becomemassive in scale and has come to exercise a major influence over political,economic and social from many types of comparative business studies and froma knowledge of many aspects of foreign business operations. In fact, sometimesthe foreign operations and the comparative business are used as synonymous forinternational business. Foreign business refers to domestic operations within aforeign country. Comparative business focuses on similarities and differencesamong countries and business systems for focuses on similarities and differencesamong countries and business operations and comparative business as fields of enquiry do not have as their major point of interest the special problems thatarise when business activities cross national boundaries. For example, the vitalquestion of potential conflicts between the nation-state and the multinationalfirm, which receives major attention is international business, is not like to becentered or even peripheral in foreign operations and comparative business.
SCOPE OF INTERNATIONAL BUSINESSACTIVITIES
The study of international business focus on the particular problems andopportunities that emerge because a firm is operating in more than one country.In a very real sense, international business involves the broadest and most
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