Module 1: Introduction: International Marketing-Trends in International Trade-Reasons for Going

International-Global Sourcing and Production Sharing-International Orientations Internationalization

Stages and Orientations-Growing Economic Power of Developing Countries-International Business
Decision-Case Studies.
Module 2: International Business Environment: Trading Environment-Commodity Agreements-
Castes-State Trading-Trading Blocks and Growing Intra-Regional Trade- Other Regional Groupings-
SAARC- GATT/WTO and Trade Liberalization-The Uruguay Round Evaluation-UNCTAI.
Module 3: Multinational Corporations: Definition-Organizational Structures-Dominance of MNC’s-
Recent Trends-Code of Conduct-Multinationals in India-Case Studies
Module 4: India in the Global Setting: India an Emerging Market-India in the Global Trade-
Liberalization and Integration with Global Economy-Obstacles in Globalization-Factors Favoring
Globalization-Globalization Strategies. Trade Policy and Regulation in India: Trade Strategies-Trade
Strategy of India-Export-Import Policy-Regulation and Promotion of Foreign Trade in India-Case studies.

Module 1: Introduction: International Marketing-Trends in International Trade-Reasons for Going

International-Global Sourcing and Production Sharing-International Orientations Internationalization
Stages and Orientations-Growing Economic Power of Developing Countries-International Business
Decision-Case Studies.

Introduction to international marketing

Meaning
There are two ways of looking at the term ‘international business’. One is the
‘action’ and the other is the ‘actor’. As an ‘action’, ‘international business’ refers
to the types, process, scale, governance and other aspects of carrying out
international business. As referring to actor, the term ‘international business’ refers
to ‘the entity carrying out the international business.

The management of business operations for an organization that conducts

business in more than one country. International management requires knowledge
and skills above and beyond normal business expertise, such as familiarity with the
business regulations of the nations in which the organization operates,
understanding of local customs and laws, and the capability to conduct transactions
that may involve multiple currencies.

International Business conducts business transactions all over the world. These
transactions include the transfer of goods, services, technology, managerial
knowledge, and capital to other countries. International business involves exports
and imports.

International Business is also known, called or referred as a Global Business or an

International Marketing.
Definition
According to International Business Journal, ‘International business is a
commercial enterprise that performs economical activity beyond the bounds of its
location, has branches in two or more foreign countries and makes use of
economic, cultural, political, legal and other differences between countries.

International business consists of all commercial transactions—including sales,

investments, and transportation—that take place between two or more countries
Increasingly foreign countries are a source of both production and sales for
domestic companies.

It is defined as the process of extending the business activities from domestic

country to any foreign country with an intension of targeting international
customers.

It is also defined as the expansion of business functions to various countries with

an objective of fulfilling the needs and wants of international customers.

Importance if international business:

The points below highlight the importance of international business:

business:

Earn foreign exchange: International business exports its goods and

services all over the world. This helps to earn valuable foreign exchange.
This foreign exchange is used to pay for imports. Foreign exchange
helps to make the business more profitable and to strengthen the
economy of its country.

Optimum utilisation of resources: International business makes

optimum utilisation of resources. This is because it produces goods on a
very large scale for the international market. International business
utilises resources from all over the world. It uses the finance and
technology of rich countries and the raw materials and labour of the poor
countries.

Achieve its objectives: International business achieves its objectives

easily and quickly. The main objective of an international business is to
earn high profits. This objective is achieved easily. This it because it
uses the best technology. It has the best employees and managers. It
produces high-quality goods. It sells these goods all over the world. All
this results in high profits for the international business.

To spread business risks: International business spreads its business

risk. This is because it does business all over the world. So, a loss in one
country can be balanced by a profit in another country. The surplus
goods in one country can be exported to another country. The surplus
resources can also be transferred to other countries. All this helps to
minimise the business risks.

Improve organisation's efficiency: International business has very high

organisation efficiency. This is because without efficiency, they will not
be able to face the competition in the international market. So, they use
all the modern management techniques to improve their efficiency. They
hire the most qualified and experienced employees and managers. These
people are trained regularly. They are highly motivated with very high
salaries and other benefits such as international transfers, promotions,
etc. All this results in high organisational efficiency, i.e. low costs and
high returns.

Get benefits from Government: International business brings a lot of

foreign exchange for the country. Therefore, it gets many benefits,
facilities and concessions from the government. It gets many financial
and tax benefits from the government.

Expand and diversify: International business can expand and diversify

its activities. This is because it earns very high profits. It also gets
financial help from the government.

Increase competitive capacity: International business produces high-

quality goods at low cost. It spends a lot of money on advertising all
over the world. It uses superior technology, management techniques,
marketing techniques, etc. All this makes it more competitive. So, it can
fight competition from foreign companies.

Trends in international business:

Major Trends in International Business

As the economy grows slowly at home, your business may have to look at selling internationally to
remain profitable. Before examining foreign markets, you have to be aware of the major trends in
international business so you can take advantage of those that might favor your company.
International markets are evolving rapidly, and you can take advantage of the changing environment
to create a niche for your company.

Growing Emerging Markets

Developing countries will see the highest economic growth as they come closer to the standards of
living of the developed world. If you want your business to grow rapidly, consider selling into one of
these emerging markets. Language, financial stability, economic system and local cultural factors
can influence which markets you should favor.
Demographic Shifts

The population of the industrialized world is aging while many developing countries still have very
youthful populations. Businesses catering to well-off pensioners can profit from a focus on
developed countries, while those targeting young families, mothers and children can look in Latin
America, Africa and the Far East for growth.

Speed of Innovation

The pace of innovation is increasing as many new companies develop new products and improved
versions of traditional items. Western companies no longer can expect to be automatically at the
forefront of technical development, and this trend will intensify as more businesses in developing
countries acquire the expertise to innovate successfully.

More Informed Buyers

More intense and more rapid communications allow customers everywhere to purchase products
made anywhere around the globe and to access information about what to buy. As pricing and
quality information become available across all markets, businesses will lose pricing power,
especially the power to set different prices in different markets.

Increased Competition

As more businesses enter international markets, Western companies will see increased competition.
Because companies based in developing markets often have lower labor costs, the challenge for
Western firms is to keep ahead with faster and more effective innovation as well as a high degree of
automation.

Slower Growth

The motor of rapid growth has been the Western economies and the largest of the emerging
markets, such as China and Brazil. Western economies are stagnating, and emerging market growth
has slowed, so economic growth over the next several years will be slower. International businesses
must plan for profitability in the face of more slowly growing demand.

Clean Technology

Environmental factors are already a major influence in the West and will become more so worldwide.
Businesses must take into account the environmental impact of their normal operations. They can try
to market environmentally friendly technologies internationally. The advantage of this market is that it
is expected to grow more rapidly than the overall economy.
Scope of International Business

1. International Marketing

2. International Finance and Investments

3. Global HR

Foreign Exchange Need for International Business

1. To achieve higher rate of profits

2. Expanding the production capacity beyond the demand of the domestic country

3. Severe competition in the home country

4. Limited home market

5. Political conditions

6. Availability of technology and managerial competence

7. Cost of manpower, transportation

8. Nearness to raw material

9. Liberalisation, Privatisation and Globalisation (LPG)

10. To increase market share

11. Increase in cross border business is due to falling trade barriers (WTO), decreasing costs in
telecommunications and transportation; and freer capital markets

Reasons for Recent International Business Growth

1. Expansion of technology

2. Business is becoming more global because •Transportation is quicker •Communications enable

control from afar •Transportation and communications costs are more conducive for international
operations

3. Liberalization of cross-border movements

4. Lower Governmental barriers to the movement of goods, services, and resources enable Companies
to take better advantage of international opportunities
International Business Problems

# 1. Different Trade Patterns:

International business has to deal with the business patterns among
the various countries of the world.

It has to take into account these business policies of various countries

which govern their imports and exports. These policies and practices
impose certain constraints and restrictions on international business.

International Business Problem # 2. Regulatory Measures:

Every country wants to export its surplus natural resources,
agricultural produce and manufactured goods to the extent, it can and
import only these goods and products which are not produced or
manufactured within the country. For this purpose regulatory
measures like tariff barriers (custom duties) non-tariff barriers, quota
restrictions, foreign exchange restrictions, technological and
administrative regulations, consulter formalities, state trading and
preferential arrangements, trade agreements and joint commissions
etc. Come in the way of free trade and unfettered flow of foreign
business.

International Business Problem # 3. Lop Sided Development

of Developing Countries:
Developed counters are equipped with sophisticated, technologies
capable of transforming raw materials into finished goods on a large
scale. While developing countries on the other-hand lack technological
knowledge and latest equipment. It leads to the lop sided development
in the international business.

International Business Problem # 4. Economic Unions:

There is an increasing tendency among nations to form small groups
of Economic Unions which help them to negotiate terms for the
business with other countries.
International Business Problem # 5. National Policy of
Development:
The country desirous of achieving self-sufficiency, follows a strategy of
importing capital goods equipped with latest and sophisticated
technology and restricting imports of less important consumer goods
with a view to lowering down its import bill.

International Business Problem # 6. Procedural Difficulties:

Different countries have evolved different procedures, practices and
documents in order to regulate the export trade. Some of these such as
foreign exchange control regulations and others have been formulated
after keeping in view the national objectives and have posed certain
procedural problems to exporters and importers.

International Business Problem # 7. Other Problems:

Apart from the problems written above there are many other internal
difficulties which restrict our export business and consequently affect
the foreign exchange earnings.

They are:
(i) Business and industry have not recognised the importance of
international business,

(ii) Inflation, high prices and black marketing are starting us in the
face. If the situation persists it may put our price level beyond the
means of our customers abroad, no matter how badly they need our
export,

(iii) Our internal economy is being managed very badly in recent

years. If it continues we cannot supply our own essential need. What
to say about supply to other nations,

(iv) Poor business ethics is also responsible for our international

business.
Key Differences Between Domestic and International Business

The most important differences Between domestic and international business are
classified as under:

1. Domestic Business is defined as the business whose economic transaction is

conducted within the geographical limits of the country. International
Business refers to a business which is not restricted to a single country, i.e. a
business which is engaged in the economic transaction with several
countries in the world.
2. The area of operation of the domestic business is limited, which is the home
country. On the other hand, the area of operation of an international business
is vast, i.e. it serves many countries at the same time.
3. The quality standards of products and services provided by a domestic
business is relatively low. Conversely, the quality standards of international
business are very high which are set according to global standards.
4. Domestic business deals in the currency of the country in which it operates.
On the contrary, the international business deals in the multiple currencies.
5. Domestic Business requires comparatively less capital investment as
compared to international business.
6. Domestic Business has few restrictions, as it is subject to rules, law taxation
of a single country. As against this, international business is subject to rules,
law taxation, tariff and quotas of many countries and therefore, it has to face
many restrictions which are barriers in the international business.
7. The nature of customers of a domestic business is more or less same. Unlike,
international business wherein the nature of customers of every country it
serves is different.
8. Business Research can be conducted easily, in domestic business. As against
this, in the case of international research, it is difficult to conduct business
research as it is expensive and research reliability varies from country to
country.
9. In domestic business, factors of production are mobile whereas, in
international business, the mobility of factors of production are restricted.
Global sourcing and production sharing

The global reality

As international demand grows for more and better products and services,
competition becomes more intense. Firms must keep up with rapidly changing
technology while also lowering their costs, increasing quality, and improving
customer service at all stages of the value chain. This is the reality of
international trade.

What is global sourcing – really?

It is the process of sourcing goods and services from the international market
across geopolitical boundaries. It aims to exploit global efficiencies such as lower
cost skilled labor, cheaper raw materials and other economic factors like tax
breaks and low trade tariffs. Examples are call centers in the Philippines, clothing
and shoes manufactured in China and Thailand.

Starting a global sourcing initiative

Many companies use an outsource solution, especially in the beginning when
they are inexperienced. International procurement organizations (or IPOs) are
often used as agents to source from “low cost” countries. They can and do
identify and develop key suppliers across many sourcing categories in large and
complex countries such as China or Brazil.

What is global sourcing – the advantages?

Some advantages of global sourcing are learning how to do business
successfully in a new market, finding and developing alternate supplier sources
to reduce costs and stimulate competition. The opportunity exists to locate
scarce skills and resources not available or unproductive at home thereby
increasing manufacturing capacity and other technical capabilities.

What is global sourcing – the disadvantages?

There are also disadvantages. Monitoring costs go up and there are hidden costs
relating to the effort and time spent learning about different cultures and time
zones, especially in the beginning. There is exposure to financial, political and
legal risks, often in emerging economies. In the service industries there is also a
real risk in losing a grip on your intellectual property.
Global sourcing of manufactured goods
Many variables come into play when sourcing manufactured goods or component
parts from another country. The supply chain is long and fragmented and the
main challenges are long lead times, the risk of disruptions in transportation and
the difficulty of ensuring the specified product quality.

What is global sourcing going to do to challenge me?

Firstly lead times for delivery are significantly longer than with domestic sourcing
and these costs have to be factored into the selling price.
Secondly, prudent financial management is key. Currencies fluctuate daily and
the price and the currency need to be fixed upfront as global sourcing often
involves payment using a letter of credit.

So what is global sourcing going to do to benefit me?

Walmart*, the US based international retailer, sums it up well “ By realigning our
resources, leveraging our scale, and restructuring our relationship with suppliers,
we ……..can offer even more competitive pricing on merchandise and provide
our customers a clear and compelling assortment of better quality products at
lower prices."

Companies that have implemented global sourcing have leapt ahead of the pack
reducing the cost of goods, accelerating the speed to market and improving the
quality on a consistent basis.

Production sharing
Production sharing

z A company distributes different stages of production to subsidiaries or other companies, often spread
far across the globe

z Concentrate efforts on their core competency

z Outsource those aspects that others can do better

z Require high standards of on-time performance and coordination

z Logistics organization: centralized vs. decentralized

Global sourcing and production sharing

September 22, 2007Sree Rama Rao Sales/Marketing Management

The trend of global sourcing and production sharing has been growing. Encouraged by the success of the
Japanese industry, out-sourcing became so prominent in the United States that an increasing
dependence on outside suppliers during the decade of 1980s helped reverse a trend toward increased
vertical integration that had been occurring for almost a century. In other words, the 1980s witnessed a
trend toward de-integration or the emergence of hollow manufacturing companies.

Spreading Web of Global Production Network:

The compositional shifts in trade have created a new pattern in the international exchange of goods,
services and ideas. Trade in components is one part of that new pattern. “Sourcing† such
components from abroad is an increasingly common practice, and use of the internet is sure to expand
the process, encouraging entry by new products throughout the developing world while precise
numbers are difficult to come by, in the early 1990’s one third of all manufacturers trade involved
parts and components. This type of trade has generated an ever spreading web of global production
networks that connect subsidiaries within transitional firms to unrelated designers, producers, and
distributors of components. These networks offer their constituent firms access to new markets and
commercial relationships and facilitate technology transfer. Advances in information technology help
firms from developing countries into global production networks. General Electric, for instance, posts
information on its component requirements on the internet, and firms from all over the world bid to
supply them.

Out sourcing has been much more conspicuous with the Japanese industries than others. For instance,
typically figures of about 60 to 70% out-sourcing for Toyota versus 30 to 40% for General Motors were
reported. The successful use of higher percentage of subcontracting by Toyota, Nissan and other
Japanese automotive companies has cited increasingly in recent years as a model for US manager who
have increased their own out-sourcing. As a result of the massive out souring program GM’s share of
parts and components produced in-house was predicted to drop from 60% to 45% by the end of the
1980s.
Much of the increased sourcing over the past decade or so has been global in nature. Many companies
have adopted global sourcing as major competitive strategy.

Some of the offshore sourcing was in fact accompanied by plant or product line closings in the United
States as US manufacturers sought the advantage of cheaper labor abroad, either in their own plants or
from others.

According to the Purchasing survey, the reasons for offshore purchases are the following, listed in the
order of importance:

1. Lower price

2. Better quality

3. Only source available

4. More advanced technology

5. More consistent attitude

6. More co-operative delivery

7. Counter trade requirements.

It may be noted that, besides the above, outsourcing has certain other advantages. It reduces the capital
and manpower requirements. It may also impart more flexibility to adjust to certain conditions like a
recession.

International sourcing accounts for an estimated one-third of the world trade. Many developing
countries have taken lot of the advantage of this trend. India, however, has not benefited to any
significant extent. However, with the changes in the business environment there are positive signs of
change. The Indian auto components industry has become, for instance, suppliers to foreign heavy
weights like General Motors, Renault, Fiat etc. The export performance of the Indian auto components is
expected to improve very significantly with the further improvement in quality and productivity which
the industry is now striving to achieve.

Production sharing is a natural corollary of the growing international sourcing. Production sharing, a
term introduced by Drucker, refers to the practice of carrying out different stages of manufacturing of a
product in several countries.
Such production sharing has become quite common in many industries including high technology and
sophisticated products. The technical development and designing may be done in one country, the
various components may be manufactured in different countries, the assembling may be done in some
other country/countries and the product may be marketed globally.