International Business :Meaning

• It refers to all business activities which involve

cross border transactions of goods, services,
resources between two or more nations.
• Transaction of economic resources include capital,
skills, people etc. for international production of
physical goods and services such as finance,
banking, insurance, construction etc.
• Large scale operations
• Integration of economies (uses diff resources from
diff countries)
• Dominated by developed countries and MNCs (as
they have the best financial, human and technical
resources)
• Benefits to participating countries (foreign capital,
technology, industrial dev, employment)
• Keen competition (weak position of developing
countries)
• Special role of science and technology
• International restrictions (on capital and
technology flow; barriers, duties, trade blocks are
there)
• Sensitive nature (Any changes in the economic
policies, technology, political environment, etc.
have a huge impact)
• International business is a term used to collectively
describe all commercial transactions
(private and governmental, sales, investments,
logistics and transportation) that take place
between two or more nations.
• Usually, private companies undertake
such transactions for profit;
governments undertake them for profit and
for political reasons.
• It refers to all those business activities which
involves cross border transactions of goods,
services, resources between two or more nations.
• Transaction of economic resources include capital,
skills, people etc. for international production of
 physical goods and services such as finance,
banking, insurance, construction etc
Scope of International Business
• Foreign trade refers to the flow of goods across
national political borders. Therefore , it refers to
exporting and importing by international marketing
companies plus the creation of demand,
promotion, pricing etc.
• The aim of international business is to increase
production and to raise the standard of living of the
people.
• International business helps citizens of one nation
to consume and enjoy the possession of goods
produced in some other nation.
Importance of international business
• Every company is trying to expand its business by
entering foreign markets. International business
helps in the following ways:-
– Helps as growth strategy: - Geographic
expansion may be used as a business strategy.
 Even though companies may expand their
business at home.
– Helps in managing product life cycle: - every
product has to pass through different stages of
product life cycle-when the product reaches
the last stages of life cycle in present market; it
may get proper response at other markets.
– Technology advantages: - some companies
have outstanding technology advantages
through which they enjoy core competency.
This technology helps the company in capturing
other markets.
– New business opportunities: - business
opportunities in overseas markets help in
expansion of many companies. They might
have reached a saturation point in domestic
market.
– Proper use of resources: -Sometimes industrial
resources like labor, minerals etc. are available
in a country but are not productively utilized.
 – Availability of quality products: - when markets
are open, better quality goods will be available
every where. Foreign companies will market
latest products at reasonable prices. Good
product will be available in the markets.
– Earning foreign exchange: - international
business helps in earning foreign exchange
which may be used for strategic imports .India
needs foreign exchange to import crude oil,
deface equipment, raw material and
machinery.
– Helps in mutual growth: - countries depend
upon each other for meeting their
requirements. India depends on gulf countries
for its crude oil supplies.
– Investment in infrastructure: - international
business necessitates proper development
of infrastructure. A company entering
international business must invest in roads.
Difference between International and Domestic
Marketing
• Conducting and managing international
business operations is more complex than
undertaking domestic business.
Modes of entry
• Exporting
• Licensing
• Franchising
• Turnkey Project
• Mergers & Acquisitions
• Joint Venture
• Wholly Owned Subsidiary
Exporting
Difference between International and Domestic
Marketing
• Meaning
• It refers to those activities which results into
transfers of goods and services from one country to
another.
• It refers to those activities which results into
transfers of goods and services inside the country
itself.
Barriers
• International trade is characteristics by tariff and
non tariff barriers.
• Domestic marketing has no such restrictions.

Currencies
• It involves exchange on the basis of different
currencies.
• It involves exchange in the basis of same
currencies.

Government
• Interference Exchange takes place under
government rules and regulations. There is high
degree of government interference.
• Government in interference is zero or minimum
only incase of essential commodities.

Culture
• Trade should be done taking diverse into
consideration. Even things like colour combination
can be affect the trade.
• Culture does not affect in domestic marketing.

• Mode of Payment
• Letter of credit is normally as mode of payment.
• Cash, Cheques, DD’s are the most common.

• Scope
• Scope of international business is quite wide. It
includes not only merchandise exports, but also
trade in services, licensing and franchising as well
as foreign investments.
• Domestic business pertains to a limited territory.
Though the firm has many business establishments
•
• in different locations all the trading activities are
inside a single boundary.

Modes of entry into an International Business

Exporting
• It means the sale abroad of an item produced,
stored or processed in the supplying firm’s home
country. It is a convenient method to increase the
sales.
• Passive exporting occurs when a firm receives
canvassed them.
• Active exporting conversely results from a strategic
decision to establish proper systems for organizing
the export functions and for procuring foreign
sales.
 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
• Low investment on the part of licensor.
• Low financial risk to the licensor
Licensor can investigate the foreign market without
much efforts
• Disadvantages
– It reduces market opportunities for both
– Both parties have to maintain the product
quality and promote the product . Therefore
one party can affect the other through
their improper acts
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.
– Trade marks
– Operating System
– Product reputation
– Continuous support system like advertising ,
employee training ,reservation services quality
assurances program etc.
• Advantages:
– Low investment and low risk
– Franchisor can get the information regarding
the market culture, customs and environment
of the host country.
• Disadvantages
– It may be more complicating than domestic
franchising.
– It is difficult to control the international
franchisee.
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
Mergers & Acquisitions
• A domestic company selects a foreign company and
merger itself with foreign company in order to
enter international business.
• Alternatively the domestic company may purchase
the foreign company and acquires it ownership and
control.
• It provides immediate access to international
manufacturing facilities and marketing network.
• Advantages
• The company immediately gets the ownership and
control over the acquired firm’s factories,
employee, technology ,brand name and
distribution networks.
• The company can formulate international strategy
and generate more revenues.
• Disadvantages:
• Acquiring a firm in a foreign country is a complex
task involving bankers, lawyers regulation, mergers
and acquisition specialists from the two countries
Joint Venture
• Two
• or more firm join together to create a new
business entity that is legally separate and distinct
from its parents. It involves shared ownership.
• Various environmental factors like social ,
technological economic and political encourage the
formation of joint ventures. It provides strength in
terms of required capital.
• Latest technology required human talent etc. and
enable the companies to share the risk in the
foreign markets. This act improves the local image
in the host country and also satisfies the
governmental joint venture.
• Advantages
• Joint venture provide large capital funds
suitable for major projects.
 • It spread the risk between or among partners.
• Disadvantages:
• Conflict may arise
• Partner delay the decision making once the
dispute arises. Then the operations become
unresponsive and inefficient.
Wholly Owned Subsidiary
• Subsidiary means individual body under parent
body. This Subsidiary or individual body as per their
own generates revenue.
• They give their own rent, salary to employees, etc.
But policies and trademark will be implemented
from the Parent body. There are no branches here.
Only the certain percentage of the profit will
be given to the parent body.
• A subsidiary, in business matters, is an entity that is
controlled by a bigger and more powerful entity.
• The controlled entity is called a company,
corporation, or limited liability company, and the
 controlling entity is called its parent (or the parent
company).
• Examples include holding companies such as
Berkshire Hathaway, Time Warner , or Citigroup as
well as more focused companies such as IBM,
or Xerox Corporation.
• These, and others, organize their businesses into
national or functional subsidiaries, sometimes with
multiple levels of subsidiaries.