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Lecture 01 international business

Lecture 01 international business

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Published by: narayana37 on Sep 19, 2010
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© Copy Right: Rai University
11.625.1 1
The beverages you drink might be produced in India, but withthe collaboration of a USA company. The tea you drink isprepared from the tea powder produced in Sri Lanka. Thespares and harddisk of the computer you operate might havebeen produced in the United States of America.The perfume you apply might have been produced in France.The television you watch might have been produced with theJapanese technology. The shoe you wear might have beenproduced in Taiwan, but remarketed by an Italian company. AirFrance and so on so forth might have provided your airtravelservices to you.Most of you have the experience of browsing Internet andvisiting different web sites, knowing the products and servicesoffered by various companies across the globe. Some of youmight have the experience of ‘even ordering and buying theproducts through Internet. This process gives you the opportu-nity of transacting in the international business arena withoutvisiting or knowing the various countries and companies acrossthe globe.You get all these even without visiting or knowing the countryof the company where they are produced. All these activitieshave become a reality due to the operations and activities of international business.Thus, international business is the process of focusing on theresources of the globe and objectives of the organizations onglobal business opportunities and threats.
Evolution of International Business
The business across the borders of the countries had beencarried on since times immemorial. But, the business had beenlimited to the international trade until the recent past. The postWorld War If period witnessed an unexpected expansion onational companies into international or multinational compa-nies. The post 1990s period has given greater fillip tointernational business.In fact, the term international business was not in existencebefore two decades. The term international business hasemerged from the term international marketing, which in turn,emerged from the term ‘export marketing.International Trade to International Marketing: Originally, theproducers used to export their products to the nearby countriesand gradually extended the exports to faroff countries. Gradu-ally, the companies extended the operations beyond trade.
India used to export raw cotton, raw jute and iron oreduring the early 1900s. The massive industrialization in thecountry enabled us to export jute products, cotton garmentsand steel during 1960s.India, during 1980s could create markets for its products, inaddition to mere exporting. The export marketing effortsinclude creation of demand for Indian products like textiles,
electronics, leather products, tea, coffee etc., arranging forappropriate distribution channels, attractive package, productdevelopment, pricing etc. This process is true not only withIndia, but also with almost all developed and developingeconomies.International Marketing to International Business: Themultinational companies which were producing the products intheir home countries and marketing them in various foreigncountries before 1980s, started locating their plants and othermanufacturing facilities in foreign/host countries. Later, theystarted producing in one foreign country and marketing in otherforeign countries. For
Uni Lever established itssubsidiary company in India,
Hindustan Lever Limited(HLL). HLL produces its products in India and markets themin Bangladesh, Sri Lanka, Nepal etc. Thus, the scope of theinternational trade is expanded into international marketing andinternational marketing is expanded into international business.
Nature of International Business
The 1990s and the new millennium clearly indicate rapidinternationalization and globalization. The entire globe ispassing at a dramatic pace through the transition period. Today,the international trader is in a position to analyze and interpretthe global social, technical, economic, political and naturalenvironmental factors more clearly.Conducting and managing international business operations isa crucial venture due to variations in political, social, cultural andeconomic factors, from one country to another country. For
most of the African consumers prefer less costlyproducts due to their poor economic conditions. Whereas theGerman consumers prefer high quality and high priced productsdue to their higher ability to buy. Therefore, the internationalbusinessman should produce and export less costly products tomost of the African countries and vice versa to most of theEuropean and North American countries. High priced and highquality Palmolive soaps are marketed in European countries andthe economy priced Palmolive soaps are exported and marketedin developing Countries like Ethiopia, Pakistan, Kenya, India,Cambodia etc.International business houses need accurate information tomake an appropriate decision. Europe was the most opportu-nistic market for leather goods and particularly for shoes. Batabased on the accurate data could make appropriate decision toenter various European countries
International business houses need not only accurate but timelyinformation. CocaCola could enter the European market basedon the timely information, whereas Pepsi entered later. Anotherexample is the timely entrance of Indian software companiesinto the US market compared to those of other countries.Indian software companies also made timely decision in the caseof’ Europe.
2 11.625.1
© Copy Right: Rai University
The size of the international business should be large in orderto have impact on the foreign Economies. Most of themultinational companies are significantly large in size. In fact,the Capital of some of the MNCs is more than our annualbudget and GDPs of the some of the
African Countries.
Most of the international business houses segment theirmarkets based on the geographic market segmentation.Daewoo segmented its market as North America, Europe,Africa, Indian subcontinent and Pacific markets.
Article 1.1:
International Business Opportunities
Y2k & Euro
India appears to be well positioned to take advantage of theopportunities by capitalizing on its reputation of being a globalcentre for development of commercial applications andoutsourced software services. But despite these advantages,companies have not been able to cash in on the opportunitieseven though software firms collectively have the potential, Inthe Y2K opportunities, a substantial part of the cost involvedin initial analysis, finalizing the strategy, testing and implemen-tation. While most of the resources services by companies toaddress the Y2K business are like “fast chicken,” capable of addressing only the code-correction phase, the real testingrequires not pseudo programmers who have entered the field,but genuine software professionals who have considerableexperience.The European Union has decided to go for a single currencynamed Euro. And for this, currency and conversion relatedchanges are to be incorporated within the software. Thisopportunity is much bigger than the Y2K one, but softwaredevelopers are not geared well enough to tap the sizeablepotential that it holds for them. It is much more a difficultopportunity. The impact of Euro on the application systemrequires more knowledge. Some software companies areaddressing this, particularly by extending their Y2K services totake part in euro projects also.International markets present more potentials than thedomestic markets. This is due to the fact that internationalmarkets wide in scope, varied in consumer tastes, preferencesand Purchasing abilities, size of the population etc. Forexample, the IBM’s sales are more in foreign countries than inUSA. Similarly, Coca-Cola’s sales, Procter and Gamble’s salesand Satyam Computer’s sales are more in foreign countries thanin their respective home countries.The population for the year 2000 indicates that: USA’s popula-tion would be 300 million, Mexico’s 126 million, Brazil’s 205million, Indonesia’s 223 million, Pakistan’s 138 million,Nigeria’s 154 million and Bangladesh’s 146 million.The size of the population, sometimes, may not determine thesize of the market. This is due to the backwardness of theeconomy and low purchasing power of the people, In fact, thesize of Eritrea an African country is roughly equal to that of the United Kingdom in terms of land area and size of thepopulation. But, in terms of per capita income it is one of thepoorest countries in the world with estimated per capita incomeof US $ 150 per annum.Therefore, the international business houses should considerthe consumers’ willingness to buy and also ability to buy theproducts In fact, most of the multinational companies, whichentered Indian market after 1991, failed in this respect. Theyviewed that almost the entire Indian population would be thecustomers. Therefore, they estimated that the demand forconsumer durable goods would be increasing in India afterglobalisation. And they entered the Indian market. The heavyinflow of these goods and decline in the size of Indian middleclass resulted in a slump in the demand for consumer durablegoods.Wider Scope: Foreign trade refers to the flow of goods acrossnational political borders. Therefore, it refers to exporting andimporting by international marketing companies plus creationof demand, promotion, pricing etc. As stated earlier, interna-tional business is much broader in scope. It involvesinternational marketing, international investments, manage-ment of foreign exchange, procuring international finance fromIMF, IBRD, IFC, IDA etc., management of internationalhuman resources, management of cultural diversity, interna-tional marketing, management of international production andlogistics, international strategic management and the like. Thus,international business is broader in scope and covers all aspectsof the system.Intercountry Comparative Study: International business studiesthe business opportunities, threats, consumers’ preferences,behavior, cultures of the societies, employees, businessenvironmental factors, manufacturing locations, managementstyles, inputs and human resource management practices invarious countries. International business seeks to identify,classify and interpret the similarities and dissimilarities amongthe systems used to anticipate demand and market products’.The system presents intercountry comparison and interconti-nental comparison/comparative analysis helps the managementto evaluate the markets, finances, human resources, consumersetc. of various countries. The comparative study also helps themanagement to evaluate the market potentials of variouscountries.The study also indicates the degree of consumer acceptance of the product, product changes and developments in differentcountries. Managements of international business houses cangroup the countries with similar features and design the sameproducts, fix similar price and formulate the same marketingstrategies. For example, Prentice Hall grouped India, Nepal,Pakistan Bangladesh, Sri Lanka etc. into one category based onthe customers’ ability to pay and designed the same qualityproduct and sell them at the same price in all these countries.Similarly, Dr. Reddy’s Lab does the same for its products to sellin the African countries.
Differences in Government Policies,Regulatory Framework 
Sovereign governments enact and implement the laws, andformulate and implement policies and regulations. Theinternational business houses should follow these laws, policiesand regulations. MNCs operating in India follow our labor

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