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Interdependency is a natural phenomenon; nations, living beings and companies could not totally depend on themselves from time immemorial till date. It is the major driving force for international business. If every one has everything, there is no need to go out to trade.
This chapter covers the essential aspects, 1. 2. 3. 4. 5. Definition of international business Emergence of developing nations in international business Motives of international business from companies and nations Fundamental differences between Domestic and International business Few successful organizations in Domestic & International business
International business: Meaning and Scope
In the post independence era, more than half-century Indian entrepreneurs concentrated on domestic operations and a surplus production was exported. The physical movement of goods, called export cannot represent International business. International business is defined as “any commercial transaction-taking place across the boundary lines of a sovereign entity”. It may take place either between countries or companies or both. Private companies involve themselves in such transactions for revenue, profit and prosperity. If governments are involved, they need to maintain their image, dependency and economic growth. Sometimes economic ties are strengthened through such transactions. These transactions include investments, physical movements of goods and services, transfer of technology and manufacturing. Today every company, whether small or large, single entity or partnership, joint stock or government owned, is determined to expand internationally. Earlier the slogan “export or perish” has now become “internationalize or perish”.
licenses. . They invest a huge sum to find a right location for cost-effective production base. manufacturing and marketing and not only on the revenue generated indigenously. There should also be sizeable market to generate revenue. quotas and other investment limitations have gradually been eliminated. Once companies from India which focused on exports. Today. To manage business internationally the right human resource is necessary and to manufacture goods. Anyone can do business in any part of the world. Hence International business operations extend their dimensions. In such a situation few key factors like finance flow or investment is a great force.International business has a wide spectrum of activities beyond mere exports. mobilizing funds and strengthening human capital overseas by which they transform their entities global. the whole world is open. Restrictions. They are on the lookout for right joint-venture partners. Japanese electronics and automobile companies made great revolution everywhere in the world. In 1970’s and 80’s. The future success of company will depend upon its operations in many other countries through investment. regulations and other barriers prevented them to take risks. and most of them restricted themselves to physical movement of goods and services i. consumables and capital items are required. In the 1950’s and 60’s. Easy access to all the above is as easy as domestic procurement today. right technology is a pre-requisite. components. Risk factors are properly analyzed and evaluated and information about them is abundant. raw material. To manufacture goods in any country. Duties. exports and imports.e. The aspiring international businessman can go anywhere and explore opportunities. companies form United States built business operations throughout the world and brought image to the nation. Hence scope of international business is widened. Why should we study International business? Three decades ago very few companies ventured in to international arena. In the same way nations success will depend on the businessman operating successfully in other countries and establishing their credentials there. marketing and other trading functions are now becoming international business units by investing. Currently Indian companies acquire and takeover companies elsewhere. setting up production centers.
replacing foreign restrictions by other models and in general liberalizing procedures. South Korea and a few Latin American countries were quick to introduce the reform process. injected new vigour in to its economy and industry by introducing an open door policy.e. Companies with surplus money should invest in different countries with motive of getting higher returns on . manufacturers in India are required to increase the production capacity and divert products to various destinations. Many South East Asian nations. India too. Privatization and Globalization.COMPANY COUNTRY OF ORIGIN OVERSEAS OPERATION KEY FACTORS FINANCE HUMAN RESOURCE TECHNOLOGY MATERIAL REFORM PROCESS Almost all the countries are reforming their economy by LPG. It is clear that through reforming process. Liberalization. i. eliminating licenses. China.
services and marketing. functions. Trade policies announced by various governments in the world are positive. Birlas. competitive and socio-cultural aspects wherever the business is setup. technology. growth opportunities and risk factors. Every business house such as Tatas. managers must understand modes. STRENGTH OF HUMAN RESOURCES Countries like India have been endowed with efficient technical and nontechnical human resources. It is mandatory for professionals to understand the whole network of political. economic indications. food and drug administration and legal procedures. which until now did not ventured in to the international arena and untapped markets have emerged as potential ground for business. Autocracy. Mittals. steel. infrastructure. Latin America. not only in India but in all countries in South Asia. environments. Proper understanding of culture. Companies with their origin in India have proved themselves all over the world specially information technology. there will be an unprecedented demand for trained professional in the field of international business to handle business. International bodies. Today international business is growing at a fast pace. Thus a large force of trained manpower is required to handle future international business in all countries. there was a need for five hundred professionals who understood drug price control order. such as World Trade Organisation strongly advocate elimination of barriers. Mallayas have begun their aggressive operations abroad. To this end they need to have access to a strong information base. Countries. Hence. cost of operation.their investment. political scenario and working . garments and jewellery. When E-Merck set up a business unit in India. To integrate all resources and produce a cost-effective product it in to revenue a strong professional force is directly involved at all stages. To operate effectively. authoritarianism and despotism are disappearing in all parts of the world. healthcare. proactive and pragmatic. manpower. legal. means. Middle East and Africa. inprocess control system. sub-Saharan Africa and the Commonwealth of Independent States (CIS) are favourite destinations of future prosperity. investment.
where it is still doing good business today. Many countries encourage trade. irrespective of their size. The company entered Kenya. 2. The objective behind international business can be looked at: 1. HP laptops are moving all the developing countries the moment they reached maturity in the U. Geographic expansion as a growth strategy: . which pass through different stages of their life cycles. 2. it is important for the company to identify other countries where the whole cycle process could be encashed. market. The Suzuki 800 cc vehicle reached the last stage of its life cycle in Japan and entered India in the early 1980’s. For example. The governments of various countries are also determined to make their economy grow through international business that has therefore become a inevitable part of their economic policy. It motivates companies to aggressively multiply their targets. and removal of strangulating trade barriers. are keen to enter in to international business.S.condition will make effective manager in international business in any country. From the government angle. Enfield India reached maturity and declining stage in India for the 350 cc motorcycle. From an individual company’s angle. From an individual company’s angle 1. Mauritius and other destinations where the heavy engine two-wheeler became popular. West Indies. REASONS TO ENTER INTERNATIONAL BUSINESS All organizations. After the product reaches the last stage of the life cycle called the declining stage in one country. Established companies are expanding their business. Managing the product life cycle: All companies have products.
Reddys follow the same. The adventurous spirit of the younger generation The younger generation of business families has considerable International exposure. they may still look overseas for new markets and better prospects. Laxmi Mittal has Emerged as the steel king of the world and Vijay Mallya of the UB Group took a major risk in setting up operations in South Africa. Bharat Heavy Electricals and Larsen & Toubro have marched ahead in International business. Corporate ambition: Every corporate in the country has strategic plans to multiply its sales turnover. Infosys. Biocon. 5. They are ambitious to be visible and then revenue. Coco Cola is still to day not earning any profit in a number of countries.Even if companies expand their business at home. 4. They are willing to take risks and challenges And also create opportunities for their business. Thermax. Gharda chemicals are known for their core competency in biotechnology. For example. Cipla and Dr. Arobindo Pharma. Building a corporate image . Technology advantage: Some companies have outstanding technology through which they enjoy core competency. Kellogge cannot think of profits in India for further five years. 6. For example. But this will not affect the company because more than a hundred countries are contributing to offset losses. Kumar Birla expands to Australia and Europe through acquisitions. Arvind mills expanded their business by either setting up units or opening warehouses abroad. In case some of the ventures fail. others will offset the losses because of multi-location operations. 3. Ranbaxy’s growth is mainly attributed to geographic expansion every year to new territories. There is a need for such technology in all countries. IT and pesticides respectively and a huge demand exists throughout the world for their technology. Ion Exchange.
The Aditya Birla Group enjoyed such incentives in Thailand and Indonesia. AEZ . Emergence of SEZ’S. New business opportunities Many companies have entered in to business abroad. EOU’S. handlooms. many companies first build their corporate image abroad. Enormous amount of growth potential is untapped in Latin America. Lobour advantage Many companies have a highly productive lobour force. 9. All such incentives contribute to the company to enjoy multiple advantages like economies of scale. Manufacturing units in India have consistently performed well. woodwork or leather.Prior to profits and revenue generation. whether in a diamond industry. metal ware. cashew processing and seafood call for cost-effective lobour force. handicraft. CIS countries and China. Their unique skills may not be available throughout the world. enjoy fiscal. 8. physical and infrastructural incentives while they setup business in the host country. 7. Today their market share and penetration levels have gone far ahead of other players in India. which are involved in international business. Once the image is built. generating revenues is a comparatively easy task. Companies nurture the skills of the artisans and win world markets. as they have expanded to semi-urban and rural India as well. seeing unlimited opportunities. carpet weaving. competitive pricing and aggressive promotion. India is endowed with such skills. embroidery. access to import inputs. Incentives and business impact Companies. 10. Sub-Saharan Africa. Samsung and LG built their image in India for the first three years and generation of revenue and profits has been considerable. Knitwear. National foreign trade policy emphasizes focus markets.
The companies setting up units in SEZ’s enjoy innumerable benefits and competitiveness. Earning valuable foreign exchange Foreign exchange earning is necessary to balance the payments for imports. essential raw materials and medical equipments for which the payments have to be made in foreign exchange. Developed countries depend on developing countries for primary goods. which have been propounded by classical economists.Current approvals of Special economic zones. Agrizones and Technology parks by Ministry of Commerce & Industry give new dimensions to international business. Interdependency of nations From time immemorial. whereas developing countries depend on developed countries for value added finished products. comparative advantage and competitive advantage. Even during the era of Indus valley civilization. India imports crude oil. 3. If the exports are high and imports are low it indicates a surplus balance of payment. The resources may be in the form of labour or infrastructure or technology or even a proactive policy of the . Today. Egypt and the Indus Valley depended on each other for various items. 2. rice etc. India depends on the Gulf regions for crude oil and in turn the Gulf region depends on India for tea. indicate that a few nations have certain advantages of resources. defense equipments. A vast majority of the nations in the world are facing adverse balance of payment. No single country is endowed with all the resources to survive on her own. On the other hand if imports are high and exports are low it indicates an adverse balance of payment. which all economies would want to avoid. From a Government Angle 1. nations have depended on each other. Trade theories and their impact The theories of absolute advantage.
4. economic zones and inland container terminals. Such theories are remaining foundations till today. which are produced at an optimum level. . knitwear from India. Investment for infrastructure Over the years all countries have invested huge amounts of money on infrastructure by building airports. seaports. Hong Kong. the country cannot recover the amounts invested. Indian diplomats in Latin America have done a remarkable job of promoting India’s business in the 1990’s. Economies like Mauritius. for international business practices with few changes and trends. 6. rice from Thailand and wool from Australia are a few illustrations.government. Infrastructure and international business are the two eyes of a growing economy. Indian embassies and high commissions in all the countries around the world play a catalytic role of promoting trade and investment. the government fixes targets for every infrastructure unit and time frame to achieve it. India’s core competency in IT is known throughout the world. Core competency of nations Many countries are endowed with resources. Such countries can compete well anywhere in the world. Diplomatic relations Diplomacy and trade always go hand in hand. Hence. If the trade activities do not increase. Many sovereign nations send their diplomatic representatives to other countries with a motive of promoting trade besides maintaining cordial relations. Competing with a focused competency in any major resource or technology gives core competency status. Singapore. Rubber products from Malaysia. Malta and Cyprus invest in trade related infrastructure in order to elevate themselves to be foreign trade oriented economies. 5.
WTO and international agencies The apex body of world trade. 9. popularly called the World Bank extends financial assistance on a soft loan basis in order to assist developing countries in their infrastructure and industrial development. a free.7. 10. Foreign trade policy and targets All developing countries announce their trade policies. in the past had its agenda and action plans right from import control order in 1947. China and Japan bring credentials to their country. A businessman gives priority to the image of the country he belongs to.N. We come across products with labels such as “made in China” and “Japan” & “made in India”. Every trade policy in India. The International Monetary Fund (IMF) maintains currency stability in various countries through regulatory mechanisms. our trade status was expected to cross $ 500 billion. International Standard Organization. India aims to have a 2% share of the global market from the current level of 1. When L. Many more organizations like International Maritime Organization. International . All the trade policies had three fold objectives in their agendaproduction promotion and competitiveness.Mittal operates in Indonesia or Kazakhstan or Trinidad he is perceived by the people as Indian. The International Bank for Reconstruction and Development (IBRD). National image A new era has emerged from conquering countries by sword to winning it by trade. transparent and regulatory body upholds provisions related to the elimination of tariffs and non-tariff barriers. 8. the WTO. The global melt down and its impact on low consumption around the world has limited the target unachievable for India. National targets By the year 2010. A clear road map is drafted and given to promotional bodies so that timely implementation is possible. By the year 2009-10. Businessmen from India. The stigma cannot be detached.5 %.
International Civil Aviation Organization are major catalysts to promote trade between nations. If business is slow in the home country.either by creating opportunities or by optimizing strengths 2. However. both domestic and international. they are not able to face the challenges abroad. especially amongst developing economies is unprecedented. Carrying out their operations respecting and adhering to local regulations 5. Generating revenue. . There are a number of organizations that do business. they concentrate more on international business. There are certain similarities between domestic and international business in terms of broad objectives and goals of the company. by properly allocating right resources in right countries. successfully. These organizations are quick to see the advantages and disadvantages involved in both operations. Generation of employment opportunities 6. On the other hand there are organizations that do very well in international business but they lose out in local arena. Customer satisfaction and building loyalty as patronage buyers 4. Understanding differences and deciding policies and strategies enable organizations to succeed or fail. and if risk is high in international business they focus their attention on the domestic front. namely: 1. Corporate image building 3.Telecommunication Union. Over the past few years their role in promotion of trade. Both are subject to a set code of conduct and ethics that includes corporate governance. Fundamental differences between DOMESTIC BUSINESS OPERATIONS AND INTERNATIONAL BUSINESS OPERATIONS Many well-known business units are highly successful in their home countries.
Research 7. Competitive forces and their intensity 4. political. Business risks 6. Plan and strategy 3. The maximum domestic competitive International competitive forces play a forces operate and one can vital role and its difficult to understand understand their movements as they their motive and movement are visible Local currency is used for Transactions are carried out in various transactions. Volatility may common. due to the political have a major impact on the situation. the output and findings. It is reasonable and easy to conduct Very expensive and difficult to conduct. business research. multi-strategic and multisystems. competitive and technology emerge any time to pose as problems. environments are known They will lead to pitfalls. socioInnumerable hidden factors which may cultural. Only long term planning and strategy Can be worked out for short terms will work. hence. . currencies. Costing. Fluctuations in cross currency revenue and margins are computed in movement and associated risks are a single currency. It is also countries and there is no uniformity in reliable. Adapting new standards and change in style and function. Currency fluctuation influences have a minimum impact in business pricing and costing and investment in short term. unknown factors. pricing. Human resources The environment is not fully known. Comparatively one can predict future Very difficult to predict and risks may risks and shocks and they will not crop up at any time. These are analyzed below. demand analysis Reliability criteria depends on individual and customer surveys. the society itself and several businesses with strong background. Strategic inputs are required in and carried forward to long term multiples. easily. individual is profit center. there are major macro level differences. At the same time. DOMESTIC BUSINESS VERSUS INTERNATIONAL BUSINESS Dimension 1.7. Due to past laurels and established Multilingual. Mass production through cost reduction and achieving economies of scale 8. Building a strong network in order to make product and services available in any part of the nation or world 9. One can overcome decisions. companies can succeed even cultural human resources and they should if the human resources have be able to withstand large risks. legal.Environment Domestic Business Operations International Business Operations 2. Every minimum skills and knowledge. under various parameters. The economic. Team commitments is evaluated and accountable. Currencies and their movements 5.
Advertising. Adapted to the local environment. as per the requirements of the domestic 9. Logistics Some business groups like Adanis started only overseas operations without any linkage with domestic operation right from the beginning. Pricing strategy plus margin pricing or competitive pricing. Organizational country with a steady growth vision and objective objective. the major focus is on overseas operations. Tata group established a good name at home country and gradually moved to other countries. There 10. Each one will understand the vision and objective easily. beliefs. usage pattern & warranties are parts of product International regulations and host country regulations are applicable. Cash and carry. Distribution channels The business house can use its discretion to select any channel to reach the customer. Domestic players are involved in all the activities. All overseas operations except exports. personal selling and other promotional methods are not restricted through strict legal framework if they are not socially objectionable. Individual ability and repayment terms determine the funds. For companies in IT. Different countries have different restrictions. Varies from country to country subject to regulations. No restriction exists here. Special regulatory bodies are involved in the process since foreign currency is transacted. International players with advanced technology and systems are involved. Companies use marginal cost pricing or transfer pricing or competitive pricing to succeed. the cost is low for physical movements. Only local regulations are fully applicable to conduct business. Broadened to cover many countries and geographic and cultural diversity may influence the vision and objective. Government or market practice governs the distribution channel. Investment and investment.appraised Narrowed down to work in a single 8. Legal aspects is minimum adherence to international regulations related to IPR. Advanced countries impose strict regulations compared to LDCs. All the companies . 14. adaptability. A majority of companies use cost 12. cultural elements and buying behavior. Proportionately. This is especially true for consumer & medicinal items. Depending on the size of the business one can start with a minimum 11. such as Wipro or Infosys. usage values. Involvement of Sourcing regulatory bodies is minimal. call for huge investments to set up and expand the business in many countries. advertisements for liquor and cigarettes are not permitted in some countries and campaigns using female models are banned in others. The cost of logistics is very high locally. Strict adherence to contractual obligations is common. For example. Promotion 15. Standardization. 13. Product and customers affordability. shopping malls and mail order services are becoming popular in international business.
cited as examples above are successful in their own right. Organizations like RELIANCE INDUSTRIES have inherent strength in indigenous business such as completing the project prior to stipulated time. Gammon India. This experience enables the company to grab any business opportunity in petrochemicals around the world and build reputation. but the strategies and operation systems differ from country to country. . IRCON (Indian Railway Construction). Larsen & Toubro (L&T) and Sapoorji Pallonji are successful due to their meticulous way of understanding both operations.