You are on page 1of 24

International Business Management

Unit 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 companies aim for global leadership. All this is 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.

Sikkim Manipal University

Page No. 1

International Business Management

Unit 1

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


International business is a broad term including not only movement of goods and services but various other aspects. 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 a country. 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 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, and trade policies and so on, of the target country. Figure 1.1 represents the various factors affecting international business.

Sikkim Manipal University

Page No. 2

International Business Management

Unit 1

Figure 1.1: Factors affecting international business

In a rapidly changing global economic scenario under World Trade Organization, starting an international business is considered to be more complex than starting a domestic business. There are two specific reasons for it. Firstly, the numbers of parties involved in international trade are more than domestic business. Such parties may include customs officials, Director General of Foreign Trade, Reserve Bank of India, excise officials and duty drawback officials, insurance companies, shipping companies, freight forwarders, and banks except exporter and importer himself. All of them help in administering, regulating, facilitating and financing the export import business. The diagram given below illustrates the agencies involved in entire international trade process.

Sikkim Manipal University

Page No. 3

International Business Management

Unit 1

Buy

Ship

Pay

Order/Prepare

Transport

Customs

Payment

Importer Exporter Insurance Company Chamber of Commerce Export/Import Agent DGFT Licensing Authority Embassies ECGC/Credit Checking Suppliers/Sub Contractors Other Intermediaries

Freight forwarder Packers & Consolidators Transporter Fumigation & Pest Control Carrier/MTO Shipping line Export Inspection Agency Other Intermediaries

Custom Clearance Custom House Agent ICDs/CFSs Health Authorities/ PHO Terminal Operators Port Management Other Intermediaries

Bank Financial institutions Factor/forfeitors Other Intermediaries

Figure 1.2: Source: Adapted from Trade Facilitation from a Developing Country Perspective; National Board of Trade Sweden; 2003

These will be discussed in detail in the coming units. Secondly, the distances involved in trade transaction, differences in business etiquettes and practices in different countries, varied cultures, languages, preferences and currencies complicate the process and the exporters need to have near accurate, comprehensive and complete information at the right time for a successful international trade entry. It is not an easy job as the information flows as well as export and import related formalities keep on changing on a continuous basis. If such information on countrys cultural, economic and social aspects is successfully administered, traders will have following advantages in successfully conducting the business. a) Speedy delivery of internationally traded goods b) Quicker release of payments in trade transactions
Sikkim Manipal University Page No. 4

International Business Management

Unit 1

c) Generating economies of scale by expanding and diversifying business to overseas markets. d) Reduced transactional costs in trade e) Retaining satisfied customers. f) Higher returns on sales, as nations usually do not impose duties and taxes on exportable goods and services.

g) Higher learning curves through feedback for international customers which help trader to customized and improve product or service on regular basis. h) Maximizing overall returns from international business. 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, when a common coinage was introduced to encourage trade across the 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 Hangman (refer figure 1.3). Goods like perfumes, fine fabrics, silk, and spices were traded from various European ports to China and other places in between.

Sikkim Manipal University

Page No. 5

International Business Management

Unit 1

Figure 1.3: 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 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 Woodss conference) held in July 1944 at new Hampshire, USA, was attended by
Sikkim Manipal University Page No. 6

International Business Management

Unit 1

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 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.

Sikkim Manipal University

Page No. 7

International Business Management

Unit 1

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, for example, 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 In a domestic market, a business deals with a homogenous culture whereas .a company with international business has to deal with heterogeneous cultures in multiple countries. The companys management
Sikkim Manipal University Page No. 8

International Business Management

Unit 1

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 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 and so it houses the worlds largest mining companies. 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.
Page No. 9

Sikkim Manipal University

International Business Management

Unit 1

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 to 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 European 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 in 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 international business. 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.
Sikkim Manipal University Page No. 10

International Business Management

Unit 1

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 the 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 set up subsidiaries in low-cost countries for manufacturing their products. Easy flow of goods and services results in the company literally designing the product in one country, manufacturing the various components in different countries, assemblings the final product in a third country and marketing the product across the world. Technological innovation The advent of internet and e-commerce, advancement of telecommunication, information technology, and improvement 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 fve lakh engineers and one million English speaking graduates and other diploma holders per year. Figure 1.4 gives you a pictorial representation of various drivers affecting international business.

Sikkim Manipal University

Page No. 11

International Business Management

Unit 1

Figure 1.4: 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.
Sikkim Manipal University Page No. 12

International Business Management

Unit 1

Export 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. Puma adopted licensing strategy post 1999. 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. McDonalds uses franchising model. 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. American Airlines is a wholly owned subsidiary of AMR Corp.

Sikkim Manipal University

Page No. 13

International Business Management

Unit 1

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. Sony Ericsson is an example of joint venture between Sony, a Japanese company and Ericsson, a Swedish company. Merger or acquisition A company can merge into or acquire an existing company with established operations in a foreign country. 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. Eg. Proctor and Gamble 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.

Self Assessment Questions 2 5. Domestic business need to comply with the accounting and taxation standards prevailing in that country. (True/False) 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 international business. Hint: Refer section 1.3.4 for different entry options.
Sikkim Manipal University Page No. 14

International Business Management

Unit 1

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 countries 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.

Sikkim Manipal University

Page No. 15

International Business Management

Unit 1

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 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.

Sikkim Manipal University

Page No. 16

International Business Management

Unit 1

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 Location International Selected target countries and trading areas Global Most global businesses operate in North America, Europe, Asia Pacific, and Latin America Same basic strategy worldwide with minor country customisation where necessary Mostly standardised products sold worldwide, moderate customisation depending on the regulatory framework 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) Attractive suppliers from across the world Much more worldwide coordination; minor adaptation to host country situations if required Efforts made to use almost the same technologies, competencies, and Page No. 17

Business

Custom strategies to fit the circumstances of each host country situation Adopted to local culture and particular needs and expectations of local buyers

Product-line

Production

Plants scattered across many host countries, each producing versions suitable for the surrounding environment

Source of supply of raw materials Marketing and distribution

Suppliers in host country preferred Adapted to practices and culture of each host country

Cross country connections

Efforts made to transfer ideas, technologies, competencies and

Sikkim Manipal University

International Business Management

Unit 1

capabilities that work successfully in one country to another country whenever such a transfer appears advantageous Company organisation Form subsidiary companies to handle operations in each host country; each subsidiary operates more or less autonomously to fit host country conditions

capabilities in all country markets (to promote use of a mostly standard strategy), new successful competitive capabilities are transferred to different country markets 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.
Sikkim Manipal University Page No. 18

International Business Management

Unit 1

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 Intellectual Property Rights (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 through various fields like communication, transportation, healthcare, and education. Self Assessment Questions 3 9. Companies, which invest in other countries for business and also operate from other countries, are considered as ___________. 10. International and global business is 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
Sikkim Manipal University Page No. 19

International Business Management

Unit 1

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, licensing etc. 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 modes for international business include exports, licensing, franchising and FDI. International business and globalisation are two different things. 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. Subsidiary: A company whose controlling interest is held by a bigger (parent) company. Trading bloc: An agreement between some countries or regions to promote trade and eliminate trade barriers within the member states.

Sikkim Manipal University

Page No. 20

International Business Management

Unit 1

1.7 Terminal Questions


1. 2. 3. 4. 5. Explain the evolution of international business. State the factors distinguishing domestic trade from international trade. Analyse various drivers of international business. Discuss the strategies to enter international business. Explain the benefits of globalisation.

1.8 Answers
Self Assessment Questions 1 1. International business 2. False 3. British East India Company 4. b) International monetary fund Self Assessment Questions 2 5. True 6. b) Market forces 7. False 8. Drivers Self Assessment Questions 3 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.

Sikkim Manipal University

Page No. 21

International Business Management

Unit 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.
Sikkim Manipal University Page No. 22

International Business Management

Unit 1

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 served 1 million customers a day; employed more than 50,000 people; operated more than 5,000 retail stores; and managed 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)
Source: www.bata.com, Retrieved on 28 June 2012

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.

Sikkim Manipal University

Page No. 23

International Business Management

Unit 1

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, retrieved on 18th September, 2010 http://www.bata.com/about-us.php, retrieved on 18th September, 2010 http://www.wto.org/english/news_e/pres11_e/pr628_e.htm, retrieved on 20th April 2012

Sikkim Manipal University

Page No. 24