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International Business Handout No 1

1. What is International Business? International Business consists of transactions taking place across national borders for the purpose of satisfying the objectives of individuals and organizations. International transactions export-import trade, licensing, franchising, contract manufacturing, management contracts, turnkey projects, foreign direct investments, joint-ventures, Alliances. International Business also includes a gro ing service industry in areas such as Information technology, transportation, tourism, advertising, construction, retailing, holesaling, and mass communication. Increasingly, companies are sourcing their human resource glo!ally. "he managers should kno the complexities, opportunities and challenges of international !usiness. #ost of the products that e use today are supplied !y international companies. It is advisa!le that each of us kno s here $ ho manufacture these goods and here $ ho these are made availa!le to us. %uch kno ledge ena!les us to identify and associate &uality ith !rands. It is also important to kno the role of government in development and promotion of international !usiness. "he study of international !usiness includes the information a!out the financial as ell as non-financial incentives provided !y the governments, the state of li!erali'ation of trade, privati'ation of state o ned enterprises and deregulation of domestic industries in different countries.

2. The Need to study International Business?

3. Evolution of International Business (ross-country trade has !een taking place since pre-historic times. )ost orld ar-II, the gro th of international $ multinational companies took place International trade to International marketing International marketing to International Business 4. Drivers of International Business International !usiness is not a ne phenomenon. *o ever, the volume of international trade and the num!er of players in it have increased significantly over last decade. A num!er of developments across the glo!e have fuelled International Business activities. +. ,mergence of -egional economic groups like ,uropean .nion, /A0"A, A%,A/ etc. 1. -ecent changes in 2A"" 32eneral Agreement on "ariff $ "rade4 and the emergence of 5"6 replacing 2A"" as a po erful and important economic organi'ation. 7. 8ast potential markets in (entral and ,astern ,urope, -ussia and the other repu!lics of the former .%%-, hich are converting themselves into market economics. #/(s are eyeing these markets. ,.g. (oca (ola started investing heavily in such countries to import its o n manufacturing, distri!ution and marketing techni&ues. 9. -ecent economic progress among less developed countries like India. :. ;ismantling of !ureaucracies, controls $ licenses, linkage among economies across the orld has strengthened. Also, the decline in transportation and communication cost has facilitated international !usiness.

<. "he internet facilitates glo!ali'ation in a !ig ay. It is making national !orders irrelevant in case of doing !usiness. . Nature of International Business 8ariations in political, social, cultural and economic factors in countries Accurate and timely information re&uirement =arger si'e of Business 2eographical market segmentation Increased potential for !usiness !ecause of !roader market perspective. 5ider scope for !usiness activities Inter-country comparative study

!. "easons for #oin$ International )rofit Advantage 2ro th opportunities ;omestic market constraints (ompetition 2overnment policies $ regulations )olitical sta!ility vs. Insta!ility Availa!ility of technology $ #anagerial (ompetence *igh cost of transportation /earness to ra material Availa!ility of >uality *uman resource at lo cost =i!erali'ation $ 2lo!ali'ation Increasing market share %. &ta$es of Internationali'ation %tage +? ;omestic (ompany %tage 1? International (ompany %tage 7? #ultinational (ompany %tage 9? 2lo!al (ompany %tage :? "ransnational (ompany (. International Business )**roa+hes ,thnocentric approach %ales of domestic products in int. markets. ;omestic orientation International #arket secondary 0irm seeks markets similar to domestic. =ittle adaptation of product or marketing mix. .sually produced domestically )olycentric approach -ecognition of difference in overseas markets ;ecentrali'ation of operations (ountry !y country !asis

=ocal marketing input and control -egiocentric approach ;ifferent regions as different markets %trategies formulated for a region 2eocentric approach ;evelop product and marketing strategies for orld markets. %tandardi'e as far as possi!le, adapt here necessary. ,conomies of scale transfer of kno ledge and technology, glo!al image, and !etter competitive position. "he orld is vie ed as the market

,. &ta$es of do-esti+ to $ evolution /ana$e-ent e-*hasis 0ocus #arketing strategy #anagement style #anufacturing stance Investment policy )erformance evaluation &ta$e one Do-esti+ ;omestic ;omestic ;omestic #ainly domestic ;omestic ;omestic market share &ta$e t0o International ,thnocentric ,xtension &ta$e three /ultinational )olycentric Adaptation &ta$e four 2eocentric ,xtension Integrated

(entrali'ed top do n ;ecentrali'ed !ottom up #ainly domestic *ost country ;omestic used orld ide Against home country market share

=o est cost orld ide #ainly in each host (ross country su!sidi'ation ,ach host country 5orld ide market share

11. )dvanta$es *igher living standards Increased socio-economic elfare 5ider market -educed effects of !usiness cycles -educed risks =arge scale economies )otential untapped markets )rovides opportunities for challenges to domestic market ;ivision of la!our and speciali'ation ,conomic gro th of the orld 6ptimum and proper utili'ation of 5orld resources (ultural transformations @nitting the orld into a closely interactive traditional villages

11. 2ro.le-s

)olitical factors *uge foreign inde!tedness ,xchange insta!ility ,ntry re&uirements "ariff, &uotas and trade !arriers (orruption Bureaucratic practices of government "echnological pirating *igh cost (ultural sensitivities

12. /a3or de+isions in International Business +4 ;eciding 5hether to 2o 2lo!al 14 ;eciding 5hich #arkets to ,nter Before going a!road, the company should try to define its international marketing o!jectives and policies. o 5hat volume of foreign sales is desiredA o *o many countries to market inA o 5hat types of countries to enterA (hoose possi!le countries and rank !ased on market si'e, market gro th, cost of doing !usiness, competitive advantage, and risk level 74 *o to enter 3#arket entry %trategies4 ,xporting Boint 8enturing o =icensing, 0ranchising, #anagement contracting, contract manufacturing, joint o nership 0oreign direct investment 94 ;eciding on the 2lo!al #arketing #ix %tandardi'ed #arketing #ix? o %elling largely the same products and using the same marketing approaches orld ide. Adapted #arketing #ix? o )roducer adjusts the marketing mix elements to each target market, !earing more costs !ut hoping for a larger market share and return. :4 ;eciding on the 2lo!al #arketing 6rgani'ation 6rgani'e an export department (reate international divisions o 2eographical organi'ations o 5orld product groups o International su!sidiaries o Become a glo!al organi'ation