Professional Documents
Culture Documents
UNIT-1
INTRODUCTION TO INTERNATIONAL BUSINESS
INTRODUCTION
The world is fast becoming a global village where there are no boundaries to stop free trade and
communication. Keeping pace with it, the way we do business has changed in an unprecedented
manner. The competition, in the global marketplace, is at its peak where all companies want to
sell their goods to everyone, everywhere on the globe.
DEFINITION
According to International Business Journal, “International business is a commercial enterprise
that performs economic 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.”
MEANING
Any business that involves operations in more than one country can be called an international
business. 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 is also known, called or referred as a Global Business or an International
Marketing.
Thus, international business is the process of focusing on the resources of the globe and
objectives of the organisation on global business opportunities and threats.
7 CULTURE There is less difference in the The market culture widely varies
market culture of local areas and among different nations and
regions within a country. The regions.
market culture is relatively
uniform
10 HUMAN A domestic business can succeed Multi lingual, multi strategic and
RESOURCE with human resource with multi-cultural human resource is
minimum skill and knowledge necessary for smooth operations of
an international business
14 PRICING Same price is charged for similar Price differentiation is carried out
products
18 TRANSACTION Short Distances, quick business is Long Distances and hence more
TIME possible. transaction time.
EXPORTING
LICENSING
FRANCHISING Contract
manufacturing
1. EXPORTING
Exporting is a typically the easiest way to enter an international market, and therefore most
firms begin their international expansion using this model of entry. Exporting is the sale of
products and services in foreign countries that are sourced from the home country.
ADVANTAGES
1. You could significantly expand your markets, leaving you less dependent on any single one.
2. Greater production can lead to larger economies of scale and better margins.
3. Your research and development budget could work harder as you can change existing
products to suit new markets.
DISADVANTAGES
1. Unless you're careful, you can lose focus on your home markets and existing customers.
2. Your administration costs may rise as you may have to deal with export regulations when
trading outside the European Union.
3. You will be managing more remote relationships, sometimes thousands of miles away.
4. In overseas markets, you may lose some of the control that you are used to at home.
5. You will need to think of your new market differently to the home market. They will be
different customers with their own reasons for buying your products.
2. LICENSING
In this mode of entry, the domestic manufacturer leases the right to use its intellectual property
(i.e.) technology, copy rights, brand name etc to a manufacturer in a foreign country for a fee.
Here the manufacturer in the domestic country is called licensor and the manufacturer in the
foreign is called licensee. The cost of entering market through this mode is less costly. The
domestic company can choose any international location and enjoy the advantages without
incurring any obligations and responsibilities of ownership, managerial, investment etc.
ADVANTAGES
1. Low investment on the part of licensor.
2. Low financial risk to the licensor
3. Licensor can investigate the foreign market without much efforts on his part.
4. Licensee gets the benefits with less investment on research and development
5. Licensee escapes himself from the risk of product failure.
DISADVANTAGES
1. It reduces market opportunities for both
2. Both parties have to maintain the product quality and promote the product. Therefore, one
party can affect the other through them improper acts.
3. Chance for misunderstanding between the parties.
4. Chance for leakages of the trade secrets of the licensor.
5. Licensee may develop his reputation
6. Licensee may sell the product outside the agreed territory and after the expiry of the contract.
3. FRANCHISING
Under franchising an independent organization called the franchisee operates the business
under the name of another company called the franchisor under this agreement the franchisee
pays a fee to the franchisor.
The franchisor provides the following services to the franchisee.
1. Trade marks
2. Operating System
3. Product reputation
4. Continuous support system like advertising, employee training, reservation services quality
assurances program etc.
ADVANTAGES
1. Low investment and low risk
2. Franchisor can get the information regarding the market culture, customs and environment of
the host country.
3. Franchisor learns more from the experience of the franchisees.
4. Franchisee get the benefits of R& D with low cost.
5. Franchisee escapes from the risk of product failure.
DISADVANTAGES
1. It may be more complicating than domestic franchising.
2. It is difficult to control the international franchisee.
3. It reduce the market opportunities for both
4. Both the parties have the responsibilities to maintain product quality
and product promotion.
4. There is a problem of leakage of trade secrets.
5. SPECIAL MODES
a) CONTRACT MANUFACTURING
Contract manufacturing in international markets is used in situations when one company
arranges for another company in a different country to manufacture its products; this is also
known as international subcontracting or international outsourcing. The company provides the
manufacturer with all the specifications, and, if applicable, also with the materials required for
the production process.
ADVANTAGES
1. Less investment
2. Less risky
3. Low cost
4. Better capacity utilization
5. An opportunity for local producers to become international
DISADVANTAGES
1. Deviations from Product design and quality Specifications
2. Loses control over Manufacturing Process
3. No authority to sell output
b) MANAGEMENT CONTRACT
A management contracts is an agreement between two companies whereby one company
provides managerial assistance, technical expertise and specialised services to the second
company of the agreement for a certain agreed period in return for the monetary compensation.
ADVANTAGES
1. Saves time and resources
2. Provides expertise
3. Saves money
4. Provides business continuity
DISADVANTAGES
1. Loss of control
2. Reputation damage
3. Conflict of interest
c) TURNKEY PROJECT
A turnkey project is a contract under which a firm agrees to fully design, construct and equip a
manufacturing/ business/services facility and turn the project over to the purchase when it is
ready for operation for a remuneration like a fixed price, payment on cost plus basis. This form
of pricing allows the company to shift the risk of inflation enhanced costs to the purchaser.
e.g.: nuclear power plants, airports, oil refinery, national highways, railway line etc. Hence, they
are multiyear project.
ADVANTAGES
1. Less management works
2. Reduced project timelines
3. Reduced cost overruns
DISADVANTAGES
1. Limited client involvement
2. Budgets may be higher than necessary
PROCESS Acquire Involves one Needs ongoing Needs ongoing Work May not realize
knowledge time transfer assistance of assistance together and experience curve
about local of property or franchiser. assist each
market rights. other
FEE Low financial Negotiable Standard Lower cost Assumes all Shared cost
STRUCTURE exposure (Royalty) Management strategies
Fees