Unit 1 Introduction To International Business: Structure

International Business Management Unit 1
Sikkim Manipal University Page No. 1

Unit 1 Introduction to International Business
Structure:
1.1 Introduction
Objectives
1.2 Introduction to International Business
Definition
Evolution
1.3 Elements of International Business
Domestic vs. international business
Advantages of international business
Drivers of international business
Entry to international business
1.4 Globalisation
International vs. global business
Benefits of globalisation
1.5 Summary
1.6 Glossary
1.7 Terminal Questions
1.8 Answers
1.9 Case-Let

1.1 Introduction
The world economy is globalising at an accelerating pace as countries
previously closed to foreign companies have opened up their markets.
Geographic distance is shrinking because of the Internet, as the ambitious
growth minded companies aim for global leadership. All of these have been
made possible because of booming international business.
International business is mainly concerned with the issues that are related to
international companies and governments cross border transactions.
International business involves multiple countries to satisfy the objectives of
every individual as well as the organisations. International business
management is a process of achieving the global objectives of a firm by
effectively managing the human, financial, intellectual and physical
resources.
In this unit, you will study about the dynamics of global business in todays
business environment and the need for multinational companies to tap
international markets for their business. In this unit, you will also examine
the difference between international business and global business.
Objectives:
After studying this unit you should be able to:
describe the evolution of international business.
explain the concept of international business.
analyse the difference between domestic, international, and global
business.
explain the dynamics of globalisation.

1.2 Introduction to International Business
When a company exports services or goods to other countries, it is termed
as international business. Let us learn the definition and evolution of
international business in detail.
1.2.1 Definition
International business can be defined as any business that crosses the
national borders of the country for its establishment. It includes importing
and exporting; international movement of goods, services, employees,
technology, licensing, and franchising of intellectual property (trademarks,
patents, copyright and so on). International business includes the
investment in financial and immovable assets in foreign countries. Contract
manufacturing or assembly of products for local sale or for export to other
countries, establishment of foreign warehousing and distribution systems,
and import of goods from one foreign country to a second foreign country for
subsequent local sale is part of international business.
There are various factors that affect international business. These factors
include economic environment, culture, political environment, financial and
banking systems, regulatory bodies, human capital, trade policies and so
on, of the target country. Figure1.1 represents the various factors affecting
international business.

Figure 1.1 Factors Effecting International Business
International trade is growing at a rapid rate. Table 1.1, which is compiled by
World Trade Organisation, gives us an understanding on the region-wise
quantum of international trade. It illustrates the incremental value and
volume of global trade in specified countries over a period of four years.
This table gives us an insight into the dynamics and importance of
Table 1.1: World Merchandise Trade by Region and Selected Country, 2008 in
$Billions

Exports Imports
Value Annual % change Value Annual% change
2008
2000-
2008
2006 2007 2008 2008
2000-
2008
2006 2007 2008
World 15775 12 16 16 15 16120 12 15 15 15
North America 2049 7 13 11 10 2909 7 11 6 7
United States 1301 7 15 12 12 2166 7 11 5 7
Canada 456 6 8 8 8 418 7 11 9 7
Mexico 292 7 17 9 7 323 7 15 10 9
South and
Central
America a 602 15 21 14 21 595 14 22 25 30
Brazil 198 17 16 17 23 183 15 23 32 44
Other South
and Central
Americaa 404 14 23 13 20 413 14 21 23 24
Europe 6456 12 13 16 12 6833 12 15 16 12
European
Union (27) 5913 12 13 16 11 6268 12 14 16 12
Germany 1465 13 14 19 11 1206 12 17 16 14
France 609 8 7 11 10 708 10 7 14 14
Netherlands 634 13 14 19 15 574 13 15 18 16
Italy 540 11 12 18 10 556 11 15 14 10
United
Kingdom b 458 6 16 -2 4 632 8 17 4 1
Commonwealth
of
Independent
States (CIS) 703 22 25 20 35 493 25 30 35 31
Russian
Federation c 472 21 25 17 33 292 26 31 36 31
Africa 561 18 19 18 29 466 17 16 24 27
South Africa 81 13 13 20 16 99 16 26 12 12
Africa less
South Africa 481 19 20 17 32 367 18 13 28 31
Oil exporters d 347 21 21 18 36 137 21 9 31 37
Non oil
exporters 133 15 18 15 22 229 16 15 27 28
Middle East 1047 19 22 16 36 575 17 12 25 23
Asia 4355 13 17 16 15 4247 14 16 15 20
China 1428 24 27 26 17 1133 22 20 21 19
Japan 782 6 9 10 10 762 9 12 7 22
India 179 20 21 22 22 292 24 21 25 35
Newly
industrialised
economies
(4) e 1033 10 15 11 10 1093 10 16 11 17
Memorandum
items:
Developing
economies 6025 15 20 17 20 5494 15 17 18 21
MERCOSUR f 279 16 16 18 25 259 14 24 31 41
ASEAN 990 11 17 12 15 936 12 14 13 21
EU (27) extra-
trade 1928 12 11 17 13 2283 12 16 16 16
Least
Developed
Countries
(LDCs) 176 22 25 24 36 157 17 15 24 27
a - Includes the Caribbean
b - The 2007 annual change is affected by fraudulent VAT declaration
c - Imports are valued f.o.b.
d - Algeria, Angola, Cameroon, Chad, Congo, Equatorial Guinea, Gabon,
Libya, and Nigeria
e - Hong Kong, China; Republic of Korea; Singapore and Chinese Taipei
f - Common Market of the Southern Cone: Argentina, Brazil, Paraguay, and
Uruguay
g - Association of Southeast Asian Nations: Brunei, Cambodia, Indonesia,
Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and
Vietnam
Source: WTO Secretariat
1.2.2 Evolution
Origins of international trade can be traced thousands of years back to the
Babylonians, who used to ply their wares to distant lands. Records of
organised international trade have been traced to the ancient Roman
Empire, who also introduced common coinage to encourage trade across
their vast empire. The proof of ancient trade routes is found in the regions of
Egypt, Arabia, Greece, Asia, and Mesopotamia.
The well-known Silk Road and Spice Routes were the epitome of
international business. The Silk Road was an overland trade route from the
Mediterranean Sea to China, developed during the Han Dynasty between
200 BC and 8 AD. This 6,000 km long route ran from Mediterranean Sea to
the early Chinese capital of Changan (refer figure 1.2). Goods like
perfumes, fine fabrics, silk, and spices were traded from various European
ports to China and other places in between.

Figure 1.2: Ancient Silk Road and Spice Route

Discovery of the America by Christopher Columbus and sea route to the
Indian coast by Vasco da Gama opened up the international markets like
never before. British East India Company, which was set up in the year
1600 AD, is credited to be the worlds first multinational company.
Industrial revolution in the eighteenth century gave way to innovation and
technology, which led to mass production facilities, and took the British
Empire to global markets. With almost unlimited supply of raw materials,
minerals, precious metals, low cost labour, and manpower supply from their
colonies, the British Empire became a world power in terms of international
trade.
Post World War I, the balance shifted to America and Europe. During this
period, the world witnessed rapid innovations in science and technology and
developments in the field of agriculture. Immediately after the World War II,
the governments of the western countries felt the need to break the trade
barriers across international borders to revive the post war economies of
their respective countries.
The United Nations Monetary and Financial Conference (Bretton Woods
conference) held in July 1944 at New Hampshire, USA, was attended by
representatives from 44 nations across the world. It laid down the framework
for international business. The outcome of the Bretton Woods conference is
stated below:
Establishment of International Monetary Fund (IMF) and International
Bank for Reconstruction and Development (IBRD).
Regulated foreign exchange market system.
Currency convertibility.
Subsequent to the Bretton Woods conference, after several rounds of
negotiations and international agreements, several trade barriers and tariffs
were reduced or removed within the guidelines of General Agreement on
Trade and Tariffs (GATT).
Creation of the WTO on 1 January, 1995, marked the biggest reform of
international trade since World War II. Under the Marrakech agreement,
WTO was formed to replace GATT. The WTO is the only international body
that deals with the rules of trade between nations. Its main objective is to
facilitate smooth international trade.
Self Assessment Questions
1. _____________ can be defined as any business that crosses the
national borders of the country of its establishment.
2. Exports and imports do not constitute international business.
(True/False)
3. ____________ is considered as the first MNC in the world.
4. Bretton Woods conference led to the formation of _____
a) World Trade Organisation
b) International monetary fund
c) United Nations Organisation
d) General Agreement on Trade and Tariffs
1.3 Elements of International Business
In the previous section, we discussed the meaning and evolution of
international business. Let us now consider the various factors that
differentiate international business from domestic business, before learning
more about international business.
1.3.1 Domestic vs. international business
The fundamental objective of any business is to generate good profits from
its operations. While this remains true in both domestic and international
business, we can observe several differences in areas like legal framework,
government regulations, financial management, accounting and taxation
systems, culture, and market forces. Some of these issues are explained
below.
Legal and regulatory framework This framework refers to companies
having to comply with the law of the land they operate in. Companies
involved in international business may have to comply with laws of more
than one country. This certainly poses a challenge as each country has its
own set of laws. These companies have to ascertain that their scope of
business is within the regulatory framework set by the authorities of that
country.
Financial management In a domestic scenario, all the payments of a
business involve the local currency. In an international scenario, typically, a
company may pay in Chinese Yuan for sourcing its materials from China,
pay wages in Malaysian Ringgits at its production base in Malaysia, and
receive payments in Euros from its customer in Germany. Hence, a
company has to deal with multiple currencies, exchange rate mechanisms,
hedging of currencies, banking systems, fluctuating interest rates and so on.
Trade barriers and tariffs In a domestic scenario, a company can move
its goods and services almost freely within the country. But in international
trade, companies face issues like licensing, anti-dumping laws, quota
restrictions, and tariffs for their business operations in a foreign country or
region.
Accounting and taxation Domestic businesses need to comply with the
accounting and taxation standards prevailing in that country. A company
with international operations has to comply with the accounting standards
and tax laws of the foreign country as well.
Culture A business deals with a homogenous culture in its domestic
market. A company with international business has to deal with
heterogeneous cultures in multiple countries. The companys management
has to study different cultures and get accustomed to different languages,
culture, sentiments, and traditions of the foreign country in order to conduct
business productively.
Market forces Demographics of each country have its own perceptions
about different products and services. The local, political, economic, and
technological environments differ from country to country. While these
differences are at a macro level, at the micro level we have to consider
several other factors. They may be in terms of customer preferences,
product placement, pricing, advertising, distribution channels and so on. An
international company has to face the challenges of multiple regional
customers, each with unique requirements.
1.3.2 Advantages of international business
Let us discuss the need for companies to expand into foreign markets, and
the benefits companies get from international business. Some of the
advantages are as follows:
Low cost production A company can take advantage of low cost
production outside its domestic operations by identifying a nation where
the labour is cost effective and in abundant supply. For example,
countries like China, Philippines, and Mexico offer such low cost
production opportunities.
Strategic resources A company utilises many valuable resources
available in a foreign country either by importing from that country or by
setting up a subsidiary, manufacturing, or production plant in that
country. These resources can be human in nature or natural resources
like minerals. For example, India has an abundance of skilled engineers,
and many global companies take advantage of this resource by either
setting up a subsidiary in India or through their partners. Similarly,
Australia boasts of rich mineral deposits. Hence, it houses the worlds
largest mining companies there.
Large customer base Expanding into markets of foreign countries
leads to exposure to more customers, better revenues, increased profits,
and lateral growth. This scenario is ideal when the company has already
established products in its domestic market. For example, Sweden
based IKEA is the worlds largest furniture retailer, and operates in 37
countries after a modest beginning in Sweden.
Competitive advantage A company with unique competencies and
capabilities gain benefits in the international market. For example, Intels
(USA) competencies and capabilities in semiconductors and chips have
propelled it to global market leadership in microprocessors.
Diversify risk Any company can dilute its business risk by spreading
its operations in a number of different and diverse countries rather than
depending on any one market or region. For example, during the 1997
Asian financial crisis, companies with exposure in Europe and American
countries were able to sustain far better than their counterparts in Asia.
1.3.3 Drivers of international business
The tendency of companies to move beyond national borders gained
momentum since the 1940s and was expedited with the establishment of
WTO in 1995. According to the data provided in table 1.1, international trade
is growing at a healthy rate, encouraged by several developments across
the world. In this section, let us explore some of these factors that drive
Global marketplace International business has become easier since the
advent of internet and the emergence of e-business. A company must have
a good product, the right strategy and an appetite to take risk at the global
marketplace in order to do business internationally.
Emerging markets Compared to developed countries, developing
countries are growing at a healthy pace, thus reducing the barriers of trade.
Emerging markets provide an unexplored marketplace with unlimited
potential and scope for business. Any company with good or innovative
products and services cannot afford to ignore the opportunities provided by
these emerging markets.
Foreign Direct Investment (FDI) policy of a nation lays down the foundation
for competitive and prosperous market conditions. Embracing globalisation
has become a vital component of development strategy for developing
countries, and is being used as an effective instrument of economic growth.
Some countries like China, India, and Philippines also provide tax holidays
to foreign companies for setting up their business (in certain sectors) in
these countries. Such incentives make these countries an attractive
destination for companies looking for low cost production.
Small domestic market A company, which is mature in its domestic
market, is driven to sell in more than one country because the sales volume
achieved in its own domestic market is not large enough to fully capture
manufacturing economies of scale. For example, Nokia is an international
company based in Finland.
Diminishing trade and investment barriers The lowering of barrier to
trade and investments (by most countries around the world) also provides
an opportunity to companies looking for expanding their business.
Expanding into a foreign country provides access to low wage labourers,
highly skilled work force, larger market base and so on. Companies have a
chance to setup subsidiaries in low-cost countries for manufacturing their
products. Because of the easy flow of goods and services, a company
literally designs the product in one country, manufactures the various
components in different countries, assembles the final product in a third
country and markets the product across the world.
Technological innovation The advent of internet and e-commerce,
advancement of telecommunication, information technology, and
improvements in logistics have changed the dynamics of business
operations. The use of mobile telephony, wireless communications, and
satellite connectivity has reduced the time needed for decision making at an
international level. Constant innovation in technology has enhanced
information flow between geographically remote areas, thus bringing the
markets of different countries closer and paving the way for international
business.
Changing demographics Most developed countries face challenges in
sourcing workforce as the average age of the population is getting older. In
the next 10 years, most of the industrialised nations will have to depend on
sourcing its workforce from countries like India, China and other countries,
where the population is young, with abundance of skilled labour. India alone
produces close to 500,000 engineers and one million english speaking
graduates and other diploma holders per year.
Figure 1.3 gives you a pictorial representation of various drivers affecting

Figure 1.3: Drivers of International Business

Trading blocs Formation of various regional and international trading
blocs like European Union, World Trade Organisation, South Asian Free
Trade Agreement, and North American Free Trade Agreement have
resulted in increased regional cooperation. These trading blocs promote
business within their scope by facilitating free trade zones, which literally
eliminates any trade or investment barriers. Regional trading blocs also
facilitate easy movement of goods, services, and human resources within
the region, thus providing a uniform opportunity to all the countries (in the
region) for proper allocation of resources.
1.3.4 Entry to international business
For a company that wants to expand internationally, there are several
available entry options. They are listed as follows:
Export strategy.
Licensing.
Franchising.
Foreign direct investment.
Exports strategy This method remains the most common means of entry
into international markets. Export strategy is a very attractive option that is
merely an extension of domestic operations. It also minimises the risk
component as well as the capital requirement. The host companys
involvement in the international market is limited to identifying customers for
marketing its products.
Licensing A domestic company can license foreign firms to use the
companys technology or products and distribute the companys product. By
licensing, the domestic company need not bear any costs and risks of
entering foreign markets on its own, yet it is able to generate income from
royalties. The reverse of this arrangement is the risk of providing valuable
technological knowledge to foreign companies, and thereby losing some
degree of control over its use. Monitoring licenses and safeguarding
companys Intellectual Property Rights can prove to be challenging in an
international scenario.
Franchising Licensing works well for manufacturing companies but
franchising is a better option for international expansion efforts of service or
retailing companies. Franchising has the same advantages as licensing.
The franchisee bears almost all the costs and risks in establishing the
foreign operations. The franchisers contribution is limited to providing the
concept, technology and training the franchisee in the already established
model. Maintaining quality poses the biggest challenge to the franchiser.
Foreign Direct Investment (FDI) FDI is the investment made by a
company in a foreign country to start its operations. Various options
available for an FDI are as follows:
Whole owned subsidiary This option is viable if a company is willing
to take all the risks of all the operations pertaining to its business in a
foreign country. A subsidiary can be formed from scratch (green field
investment) to manufacture and market its products and services in a
foreign country. A firm can also export its products or services to other
countries from its subsidiaries.
Joint Ventures (JV) - This is a very popular mode of entry into foreign
markets, as it minimises business risk and investment. It is owned by
one or more firms in proportion to their investment. If a JV is done with
an existing competitor, it could be termed as a strategic alliance.
Merger or acquisition - A company can merge into or acquire an
existing company with established operations in a foreign country. This
option is more practical than a green field investment, as it saves a lot of
time in construction, initial setup, and regulatory approvals and so on. In
the bargain, the acquiring company can use all the established brand
names, distribution networks and so on of the acquired company.
Strategic investment - Any firm can purchase a stake in a foreign
company, whereby they are entitled to a share in the profits, if any. The
shareholding can be a minority stake and may be without voting rights.
Generally, the investing company does not participate in the
management of the target company.
5. ____________ need to comply with the accounting and taxation
standards prevailing in that country.
6. ___________ is not an advantage of international business.
a) Low cost production
b) Market forces
c) Large customer base
d) Diversified risk
7. Franchising and licensing are barriers to international business.
(True/False)
8. Technological innovations and diminishing trade barriers are
_________ of international business.

Activity 1
Discuss examples of Indian companies for each entry strategy for
Hint: Refer section 1.3.4 for different entry options.
1.4 Globalisation
In the previous section, we learnt the various aspects of international
business. We will now broaden our perspective and examine globalisation.
Globalisation is a process where businesses are dealt in markets around the
world, apart from the local and national markets. According to business
terminologies, globalisation is defined as the worldwide trend of businesses
expanding beyond their domestic boundaries. It is advantageous for the
economy of countries because it promotes prosperity in the countries that
embrace globalisation. In this section, we will understand globalisation, its
benefits and challenges.
1.4.1 International vs. global business
Most of us assume that international and global business are the same and
that any company that deals with another country for its business is an
international or global company. In fact, there is a considerable difference
between the two terms.
International companies Companies that deal with foreign companies for
their business are considered as international companies. They can be
exporters or importers who may not have any investments in any other
country, apart from their home country.
Global companies Companies, which invest in other countries for
business and also operate from other countries, are considered as global
companies. They have multiple manufacturing plants across the globe,
catering to multiple markets.
The transformation of a company from domestic to international is by
entering just one market or a few selected foreign markets as an exporter or
importer. Competing on a truly global scale comes later, after the company
has established operations in several countries across continents and is
racing against rivals for global market leadership. Thus, there is a
meaningful distinction between a company that operates in few selected
foreign countries and a company that operates and markets its products
across several countries and continents with manufacturing capabilities in
several of these countries.
Companies can also be differentiated by the kind of competitive strategy
they adopt while dealing internationally. Multinational strategy and global
competitive strategy are the two types of competitive strategy.
Multinational strategy Companies adopt this strategy when each
countrys market needs to be treated as self contained. It can be for the
following reasons:
Customers from different countries have different preferences and
expectations about a product or a service.
Competition in each national market is essentially independent of
competition in other national markets, and the set of competitors also
differ from country to country.
A companys reputation, customer base, and competitive position in
one nation have little or no bearing on its ability to successfully
compete in another nation.
Some of the industry examples for multinational competition include beer,
life insurance, and food products.
Global competitive strategy Companies adopt this strategy when
prices and competitive conditions across the different country markets
are strongly linked together and have common synergies. In a globally
competitive industry, a companys business gets affected by the
changing environments in different countries. The same set of
competitors may compete against each other in several countries. In a
global scenario, a companys overall competitive advantage is gauged
by the cumulative efforts of its domestic operations and the international
operations worldwide.
A good example to illustrate is Sony Ericsson, which has its headquarters in
Sweden, Research and Development setup in USA and India,
manufacturing and assembly plants in low wage countries like China, and
sales and marketing worldwide. This is made possible because of the ease
in transferring technology and expertise from country to country.
Industries that have a global competition are automobiles, consumer
electronics (like televisions, mobile phone), watches, and commercial
aircraft and so on.
Table 1.2 portrays the differences in strategies adopted by companies in
international and global operations.
Table 1.2: Differences between International and Global Strategies
Strategy International Global
Location Selected target countries and
trading areas
Most global businesses
operate in North America,
Europe, Asia Pacific, and
Latin America
Business Custom strategies to fit the
circumstances of each host
country situation
Same basic strategy
worldwide with minor
country customisation
where necessary
Product-line Adopted to local culture and
particular needs and
expectations of local buyers
Mostly standardised
products sold worldwide,
moderate customisation
depending on the regulatory
framework
Production Plants scattered across many
host countries, each
producing versions suitable
for the surrounding
environment
Plants located on the basis
of maximum competitive
advantage (in low cost
countries close to major
markets, geographically
scattered to minimise
shipping costs, or use of a
few world scale plants to
maximise economies of
scale)
Source of supply
of raw materials
Suppliers in host country
preferred
Attractive suppliers from
across the world
Marketing and
distribution
Adapted to practices and
culture of each host country
Much more worldwide
coordination; minor
adaptation to host country
situations if required
Cross country
connections
Efforts made to transfer
ideas, technologies,
competencies and
capabilities that work
successfully in one country to
another country whenever
such a transfer appears
advantageous
Efforts made to use almost
the same technologies,
competencies, and
capabilities in all country
markets (to promote use of
a mostly standard strategy),
new successful competitive
capabilities are transferred
to different country markets
Company
organisation
Form subsidiary companies
to handle operations in each
host country; each subsidiary
operates more or less
autonomously to fit host
country conditions
All major strategic decisions
closely coordinated at
global headquarters; a
global organisational
structure is used to unify the
operations in each country
1.4.2 Benefits of globalisation
The merits and demerits of globalisation are highly debatable. While
globalisation creates employment opportunities in the host countries, it also
exploits labour at a very low cost compared to the home country. Let us
consider the benefits and ill-effects of globalisation. Some of the benefits of
globalisation are as follows:
Promotes foreign trade and liberalisation of economies.
Increases the living standards of people in several developing countries
through capital investments in developing countries by developed
countries.
Benefits customers as companies outsource to low wage countries.
Outsourcing helps the companies to be competitive by keeping the cost
low, with increased productivity.
Promotes better education and jobs.
Leads to free flow of information and wide acceptance of foreign
products, ideas, ethics, best practices, and culture.
Provides better quality of products, customer services, and standardised
delivery models across countries.
Gives better access to finance for corporate and sovereign borrowers.
Increases business travel, which in turn leads to a flourishing travel and
hospitality industry across the world.
Increases sales as the availability of cutting edge technologies and
production techniques decrease the cost of production.
Provides several platforms for international dispute resolutions in
business, which facilitates international trade.
Some of the ill-effects of globalisation are as follows:
Leads to exploitation of labour in several cases.
Causes unemployment in the developed countries due to outsourcing.
Leads to the misuse of IPR, copyrights and so on due to the easy
availability of technology, digital communication, travel and so on.
Influences political decisions in foreign countries. The MNCs
increasingly use their economical powers to influence political decisions.
Causes ecological damage as the companies set up polluting production
plants in countries with limited or no regulations on pollution.
Harms the local businesses of a country due to dumping of cheaper
foreign goods.
Leads to adverse health issues due to rapid expansion of fast food
chains and increased consumption of junk food.
Causes destruction of ethnicity and culture of several regions worldwide
in favour of more accepted western culture.
In spite of its disadvantages, globalisation has improved our lives in various
fields like communication, transportation, healthcare, and education.
9. Companies, which invest in other countries for business and also
operate from other countries, are considered as ___________.
10. International and global business are different. (True/False)
11. Globalisation improves the living standards of people in developing
countries. (True/False)
12. ____________ can be defined as the worldwide trend of businesses
expanding beyond their domestic boundaries.

Activity 2
Aditya Birla group is a global corporation. Justify this statement based on
their business strategies.
Refer this link for guidance - http:// www. adityabirla. com/media/
press_reports/20070114_dare_to_dream.htm

1.5 Summary
Now, let us summarise what we have discussed in this unit about
introduction to international business:
International business involves cross border movement of goods and
services. It includes exporting, importing, franchising and licensing.
International business dates back to the Babylonians who plied their
goods across distant lands.
International business differs from domestic business in some important
features like the financial management of the business, the legal and
regulatory framework, and the market forces that dictate the demand of
products. Some of the entry points for international business include
FDIs and exports.
Difference between international business and globalisation were
discussed.
Globalisation involves companies that invest and operate in other
countries. It promotes economic growth and prosperity in the countries
that embrace globalisation. Some of the benefits of globalisation include
liberalisation of economies and the free flow of information.

1.6 Glossary
Acquisition: The process by which a company buys most, if not all, of the
target company's controlling shareholding in order to assume control of the
target firm.
Demographics: The composition of a countrys population in terms of age,
sex, marital status, family size, education, geographic location, and
occupation.
IPR: Intellectual Property Rights are the legal rights over an intangible
asset. For example, designs, ideas, music composition and so on.
MERCOSUR: is a regional trade agreement between the sovereign
countries of Argentina, Brazil, Paraguay and Uruguay.
Merger: The process in which two companies combine to form a single
entity.
NAFTA: North American Free Trade Agreement is a free trade agreement
between Canada, Mexico, and the USA.
SAFTA: South Asian Free Trade Agreement is a regional economic
cooperation agreement between seven South Asian nations.
Subsidiary: A company whose controlling interest is held by a bigger
(parent) company.
Trading bloc: An agreement entered between some countries or regions to
promote trade and eliminate trade barriers within the member states.
1.7 Terminal Questions
1. Explain the evolution of international business.
2. State the factors distinguishing domestic trade from international trade.
3. Analyse various drivers of international business.
4. Discuss the strategies to enter international business.
5. Explain the benefits of globalisation.

1.8 Answers
1. International business
2. False
3. British East India Company
4. b) International monetary fund
5. Domestic businesses
6. b) Market forces
7. False
8. Drivers
9. Global companies
10. True
11. True
12. Globalisation
Terminal Questions
1. International business can be traced back to 200 BC. Discovery of new
sea routes in the sixteenth century propelled international business into
dimensions with the formation of multinational companies. Post World
War II, it took a new dimension and led to globalisation that has been
witnessed today. For more details, refer sub-section 1.1.1.
2. Distinguishing factors between domestic and international businesses
are legal and regulatory framework, financial systems, trade barriers
and tariffs, accounting and taxation, culture and markets. For more
details, refer sub-section 1.3.1.
3. Some of the drivers of international business are attractive emerging
markets, diminishing trade barriers, innovations in technology,
changing demographics, and encouraging trade blocs. For more
details, refer section 1.3.3.
4. Strategies for entering international business are exporting, licensing,
franchising, joint venture, wholly owned subsidiary, and strategic
investment and so on. For more details, refer section 1.3.4.
5. Outsourcing to low wage economies, increased living standards in
developing countries, competitive pricing of products and services,
easy access to finance and global educational opportunities are some
benefits of globalisation. For more details, refer section 1.4.2.

1.9 Case-Let

BATA An International Company
Bata Shoe Company, founded in 1894 in the former Czechoslovakia
(presently headquartered in Lausanne, Switzerland), is one of the world's
leading footwear retailers and manufacturers, with operations across five
continents managed by three regional meaningful business units (MBUs).
The MBU approach provides quality resources and support in key areas
to the companies operating in similar markets such as product
development, sourcing, or marketing support. Each MBU is
entrepreneurial in nature, and can quickly adapt to changes in the market
place and seize potential growth opportunities.
Batas three MBUs are Bata Europe, Lausanne, Switzerland; Bata
Emerging Markets, Singapore; and Bata Branded Business, Best,
Holland.
Bata's strength lies in its worldwide presence. While local companies are
self-governing, each one benefits from its link to the international
organisation for back-office systems, product innovations, and sourcing.
Research and development Bata operates six Shoe Innovation
Centres (SICs). Research is conducted in applying new technologies,
materials, and designs for shoe comfort features. Each SIC has a product
focus to supply complete packages of services for the manufacturing
and marketing of innovative shoes.
Shoe making expertise Apart from being one of the world's leading
footwear retailers, Bata is also an expert in making shoes, with over 110
years of experience in manufacturing. Currently, they operate 33
production facilities across 22 countries.
While most modern day manufacturers outsource to Asia, Bata
manufactures predominantly in their own manufacturing facilities across
the world, guaranteeing quality and expertise.
Approximately half their factory outputs are destined for sale through
Bata-owned retail stores, and the balance is manufactured to the
specifications of wholesale customers or under contract to other footwear
brands.
Bata innovations in footwear production techniques are being used by
other competitors in the industry even today.
In 2010, Bata serves 1 million customers a day; employs more than
50,000 people; operates more than 5,000 retail stores; and manages
retail presence in more than 70 countries.
Discussion Questions
1. Bata is a global company. Justify. (Hint: operates in 70 countries)
2. Identify the strategy that Bata uses for entry into new markets. (Hint:
Own showrooms)
3. What are the factors that help Bata retain its global leadership
position? (Hint: Innovation)

References
Batra, G. S. (2006). Liberalisation, Globalisation and International
Business. Deep and Deep Publications.
Bhalla, V. K. & Shiva, Ramu S. (2008). International Business
Environment and Management. Anmol Publications.
Chauhan, P.L., Kakkad, Ratish, Patel, Rupal H. (2006). International
Business. Shanthi Prakashan.
Cherunilam, Francis (2010). International Business Environment.
Himalaya Publishing House.
K. Aswathappa (2010). International Business. Tata McGraw-Hill
Publications Co. Ltd.
McDonald, Frank and Burton, Fred (2002). International Business.
International Thomson Computer Press.
Nelson, Carl A. (1999). International Business - A Managers Guide to
Strategy in the Age of Globalism. PWS South Western Duxbury Cole
Onwo.
Porter, Michael (1990). The Competitive Advantage of Nations. The
Free Press.
Thomson Jr., Arthur; Strickland III, A. J.; Gamble, John E. & Jain,
Arun K. (2006). Crafting and Executing Strategy: The Quest for
Competitive Advantage. Tata McGraw Hill Publications Co. Ltd.
E-References
http://www.wto.org
Retrieved on 17th September, 2010
http://cas.bellarmine.edu/tietjen/Ecol&Evol/connections.htm
http://www.bata.com/about-us.php
Retrieved on 18th September, 2010

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