Scribd Logo
Upload

Welcome to Scribd!

  • FOIB

    Uploaded by

    Ankit
    10 views19 pages

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    10 views19 pages

    FOIB

    Uploaded by

    Ankit

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 19
    1 INTERNATIONAL BUSINESS : AN OVERVIEW Introduction International business has been playing an important role for centuries. At present, it has become indispensable for any country. Its role has increased significantly, both at macroeconomic and microeconomic levels. No country—developed or developing— produces all commodities to meet its requirements. It needs to import items that are not produced domestically. At the same time, it tries to export all items that are produced over and above its domestic requirements, so that its balance of payments may not disturb due to imports. In a developing country, the range of production is often limited. Hence, the import requirements are bigger. On the other hand, such a country tries to increase or expand its exports in order to earn foreign excnange that could, in turn, meet its import requirements. In case of a developing country, foreign direct investment (FDI) is very crucial. It helps obtain large foreign exchange resources and latest technology. That is why, foreign direct investment has gained importance in the recent past and it is made for various Purposes. In order to maximise corporate wealth, it is in the interest of a firm to export its product to foreign market and to capture a large share of the markets abroad, especiatly when domestic market is saturated. On the other hand, in order to minimise the cost, a firm should imports inputs from least cost locations. Meaning of International Business International business means carrying business activities beyond national boundaries. These activities normally include the transaction of economic resources such as goods, Capital, services (including skilled labour, technology and transportation etc.) and international production. Production may either involve production of goods or provision of services like banking, finance, insurance, construction, trading and so on. Thus, international business includes international trade of goods and services and foreign Investment between two nations or countries. =, \ International Business : An Overview, 2 ternational business stems from the business ce ee . ‘ders. Since the international business ieee ate not cont ined to ot eee io a ies in the conventional sense, the term “national border” jg to Oey Saas Amore flexible concept of the national border is the Conta ETERS obE and Multinational Enterprise (MNEs) having a a characte attributable to their different social, cultural and Sooo een i ; rding t2 Daniels, Radebaugh and Sullivan, “International business includes all esa transactions—private and governmenta between ao or more countries, These transactions include sales, investments and transportation. ; Private companies undertake such transactions for profit, whereas government agencies may or may not pursue the profitability objective. The concept of int Features of International Business The salient features of international business are as follows : 1. Exchange of Goods—International business involves purchase of goods from other countries and sale of goods to other countries. Purchase of goods from a foreign country is known as import and sale of foods to another country is known as export trade. But when goods are imported from a country with the objective of exporting them to some other country, it is known as ‘entrepot trade’. 2. Involvement of Two Countries—international business is carried on mostly in large quantities both on government to government account and Private account. It involves individuals as well as business houses. 3, Foreign Currency—This is the most important feature of international business. Payment for imported goods is made in foreign currency, Similarly, payment for export Of goods is received in foreign currency. In India, Conversion of foreign currency into Tupee or vice-versa is regulated by the Reserve Bank of India. 4. Restrictions—international business is not as free as internal trade. For example, many restrictions have been imposed by the central government on the import and export of goods. In case of several items, license is also required for import or export. Many goods are subject to import and export duties. 5. Lengthy Procedure—Becay transport of goods between two countries j Generally, there is a wide gap between the time the goods i are shi by the exporter and the time they are received by - ee : the i isi i a eo neues sae country has its own language. Because of differences {iuaeuases, lere may be problem in entering into import and export 7. Risks—Internatio: the relative prices of two marine insurance is nece: nal business is exposed to several risks such as fluctuations in Currencies, perils of Sea, fear of obsolescence, etc, That is why 'ssary to protect against such risks. International Business : An Overview Motives for International Business There are several factors which motivate firms to may be broadly divided into two groups, viz., pull fa factors are those factors which pull the business to the foreign markets. In other words, companies are motivated to go to international because of attractiveness of the foreign market, Such attractions include the profitability and growth prospects. The Push factors refer to the compulsions of domestic market such as saturation of the market, which compell companies to go international. The important Motives for international business are described as follows : 1. Profit Advantage—This is the most important incentive for international business. There are cases of companies which earned more than 100 per cent of the total profit from foreign markets. Even when international business is less profitable than the domestic, it could increase the total profit, Further, in certain cases, international business can hel the domestic business. This is illustrated with the help of 90 international. These factors tors and push factors, The pull Ip increase the profitability of following figure. AC ° Q Q, ig. : Impact of Exports on Average Unit Cost In the figure, AC is the average cost curve. The average cost of production per unit will be the lowest if the plant is operated at optimum capacity, i.e. if the quantity of Production is Q,. However, because of the domestic demand constraint, the output level is only Q and the Corresponding average cost is C. If the company can export QQ, quantity, it can operate at optimum Capacity and reduce the average cost by CC, Under Such a situation, exporting even on no-loss no-profit basis is advisable because by optimum utilisation of the capacity, the profitability of the domestic business is increased, In the above example, the profitability per unit will be increased by CC, and the total 4 International Business : An Overview profit from domestic business will increase by CC,PR. Thus, exporting increases, in this case, the profit from domestic business without any increase in price or sales, One of the important motivations for foreign investment is to reduce the cost of production (by taking advantage of the cheap labour, for example). While in some cases, the whole manufacturing of a product may be carried out in foreign locations, in some cases only certain stages of it are done abroad. A significant share of the merchandise imported into the United States is manufactured by foreign branches of ‘American companies. Several American companies ship parts and components to overseas locations where the labour intensive assembly operations are carried out and then the product is brought back home. The North American Free Trade Agreement comprising the US, Canada and Mexico is expected to encourage large relocation of production to Mexico where the labour is substantially cheap. 2. Growth Opportunities—An important reason for going international is to take advantage of the opportunities in other countries. MNCs are. getting increasingly interested in a number of developing countries as the income and population are rapidly rising in these countries. Of the one billion people estimated to be added to the world population between 1999 and 2014, only about three per cent will be in the high income economies, ‘As pointed out in the preceding and following sub-sections, many companies could achieve the growth they realised only because of the foreign markets. Foreign markets, in both developed country and developing country, provide many growth opportunities for the developing country firms too. For exarnple, in recent years, ‘a number of Indian pharmaceutical firms have achieved a much faster growth of their foreign business than the domestic. The US market alone is expected to contribute as much as half of the total sales of Ranbaxy shortly. 3. Domestic Market Constraints—Domestic demand constraints motivates many companies to expanding the market beyond the national border. The market for a number of products tends to saturate or decline in the advanced countries. This often happens when the market potential has been almost fully tapped. In the United States, for example, the stock of several consumer durables like cars, TV sets, etc. exceeds the total number of households. Estimates are that in the first quarter of the 2ist century the population in some of the advanced economies would saturate ‘or would grow very negligibly, while in some others there would be a decline. Such demographic trends have very adverse effects on certain lines of business. For example, the fall in the birth rate implies contraction of market for several baby products. ‘Another type of domestic market constraint arises from the scale economies. The ‘technological advances have increased the size of the optimum scale of operation i substantially in many industries making it necessary to have foreign market, in addition the domestic market, to take advantage of the scale economies. It is the thrust given exports that enabled certain countries like South Korea to set up economic size nts. In the absence of foreign markets, domestic market constraint comes in the way Jenefiting from the economies of scale in some industries. For example, for a certain International Business : An Overview f chemical product, the minimum economic size of the plant is 35,0( demand for it in India by the end of the last century was expect 10,000 tonnes. Domestic recession often provokes companies to explore forei the factors which prompted the Hindustan Machine Tools Ltd, (HMT) to take up exports very seriously was the recession in the home market inthe late 1960s, The recession in the automobile industry in the early 1990s, similarly, encouraged several Indian auto component manufacturers to explore or give a thrust to foreign markets, Even when the domestic market presents good growth may be more attractive. For example, a number of Indian been deriving major part of their growth from abroad. The instance, provides an enormous opportunity for Indian fi expand substantially as a number of products will be goit in the US. 4. Competition—Competition may become a drivin internationalisation. A protected market does not normally motivate companies to seek business outside the home market. Until the liberalisations, which started in July 1991, the Indian economy was a highly protected market. Not only that the domestic producers were protected from foreign competition but also domestic competition was restricted by several policy induced entry barriers, Operated by such measures as industrial licensing and the MRTP regulations. Being in a seller’s market, the Indian companies, in general, did not take the foreign market Seriously. The economic liberalisation has increased Competition from foreign firms as well as from those within the country, have, however, Significantly changed the scene. Many Indian companies are now systematically planning to go international in a big way. 5. Government Policies and R 100 tonnes, but the ed to be less than ign markets. One of Prospects, foreign markets Pharmaceutical firms have le US generics market, for ms. The size of this market will ng off-patent in the near future 9 force behind ‘egulations—Government policies and regulations May also motivate internationalisation. There are both positive and negative factors which could cause internationalisation. Many governments offer a number of incentives and other positive support to domestic companies to export and to invest in foreign Sountries. Similarly, several countries give a lot of importance to import development and foreign investment. Sometimes, as was the case in India, companies may be obliged to earn foreign exchange to finance their imports and to meet certain other foreign exchange requirements like payment of royalty, dividend, etc, Further, in India, permission to enter certain industries by the large companies and foreign companies was subject to Specific export obligation. Some companies also move to foreign countries because of certain regulations like the environmental laws in advanced countries, Government policies which limit the scope of business in the home country may also provoke companies to move to other countries. Here is an interesting case: In the early 1970s, having tailed to make any headway within India, the only alternative left for the Birlas was to set up industries in other countries and it put up several successful Companies in all the ASEAN countries. “This was surely a paradox. The same government \ International Business : An Overvie, 6 capacities within the coy, Ne ine a 5 peep lat nih products for whl allowed us to set up industries outside the country ae, . viscose staple fibre plant in Thail and, ang had said ‘no’ in India. Thus, we set up a i back to India”. ee NRE EERE BRELe in the government of India’s economic ay, a Situati however, has changed. Many Indian companies are entering international market Or ate expanding their international operations because of Positive’ Feasons: ; 6. Image Building—International business has certain spin-offs too. It may help the company to improve its domestic business; international business helps to improve! the image of the company. There may be the ‘white skin’ advantage associated with exporting—when domestic consumers get to know that the company is selling a significant Portion of the production abroad, they will be more inclined to buy from such a company, International business, thus, becomes a means of gaining better market share domestically, Further, exports may have pay-offs for the internal market too by giving the domestic market better products. Further, the foreign exchange earnings may make it easy for a company to import capital goods, technology, etc. Another attraction of exports is the economic incentives offered by the government. 7. Strategic Vision—The systematic and growing internationalisation of many business policy or strategic management. The stimulus for internationalisation comes from the urge to grow, the need to become more competitive, the need to diversify and to gain strategic advantages of internationalisation. Many companies in India, like Several pharmaceutical firms, have realised that a major part of their future growth will be in the foreign markets. There are a number of corporations which are truly global. Planning of manufacturing facilities, logistical systems, financial flows and marketing policies in such corporations are done considering the entire world as its, and a single, market—a borderless world, Evolution and Development of International Business The origin of international business did not emerge overnight. Domestic firms went through the various stages of the evolution Process. The evolution process takes place in three successive stages, They are 1. Trade 2. Assembly or Production 3. Integration, a regular phenomenon, an export Growing trade, the firm sets up a branch in important count i lly evolves into a subsidiary. The subsidiary Ese ee eco operates asa marketing aide that helps penetrate the International Business : An Overview 3 foreign market and collect information regarding the changing tastes of consumers. The two-way traffic gradually becomes easier. The firms is not satisfied with export alone. It wants to reach the consumers at the lowest possible cost, probably to compete with other suppliers. It may be noted here that the technology involved in the product does not remain the monopoly of the firm in due course of time. Reaching consumers at the least cost is barred by the imposition of tariff and transportation cost. So, the firm decides to assemble the final product in the importing country itself so as to avoid tariff and the transportation cost. In some cases, the firm starts manufacturing of the product in the importing country if necessary facilities are available there. The second phase of the evolutionary process starts here. Lastly, the firm tries to integrate the activities of its different units. Intra-firm transfer of funds or material takes place in order to maintain an optimal trade-off between liquidity and profitability in the various units located in different countries. It is also undertaken for maximising the global profit. Sometimes, depending upon the cost and the facilities available, various stages of production and assembly of the same product are carried out in different countries. Integration is required in this case too for strengthening and optimising the vertical linkages. The implementation of financial, marketing, production, and personnel strategies too requires foolproof integration among different units. In this way, the third stage of the evolution process is completed and a perfect MNC appears to exist, although internationalisation of business sets in with the beginning of export business. Early Developments International trade is many centuries old. In the 16th and the 17th centuries, international trade was carried out by individuals seeking fortunes for themselves. The reward was often great, but the risk of the voyage was also very high. Exotic goods that were traded normally were those that were sold at home at soaring prices. It was the fabulous profits that motivated some firms to operate abroad. The East India Company was among the foreign trading companies that moved to India in the early decades of the 17th century. However, in the wake of Industrial Revolution in Europe, the character of international business changed. International enterprises came to be engaged in extracting, processing, and transporting raw materials for industrial plants located in the home country and also in exporting their manufactured goods back to the raw material producing countries. Inshort, their activities were guided by the requirements of the home country industries, During the last quarter of the 19th century through the outbreak of the First World War, the British and other European and American companies operating abroad reached the Peak of their trading activities. After the Great War of 1914-18, the functions of international companies widened. They also came to be engaged in various services that the government of host countries International Business : An Overview was not able to render efficiently. This was the reason why host governments provided western companies many concessions. Post-War Developments the economy of the US turned out to be the strongest. American By the mid-1940s, leveloped and needed to acquire new sources of raw material, industries were well d t share of the world market. All this led to Moreover, they wanted to capture the larges rapid internationalisation of US firms since 1950s. During the two decades beginning from 1950, US foreign direct investment grew from $12 billion to $80 billion (Wilkins, 1970). Since 1960s, many European firms too turned into multinationals, and since 1970s, nese MNCs. In 1970 only one MNC was listed there was substantial growth in Japa among the world’s largest 50 companies. By the end of the decade, the number rose to six. By 1980s, the Japanese became the largest producers of automobiles—a position that was enjoyed by the USA until then. Since 1970s, the firms of developing countries too began operating internationally. There were two sets of developing countries. One was represented by oil exporting countries that had acquired huge foreign exchange reserves in the wake of the oil crisis of the 1970s. The other group was represented by newly industrialising countries that had imported technology from the developed countries and built up their own industrial base. Firms from both types of the developing countries established their affiliates abroad in a big way. ‘And, of late, multinational firms have come to emerge also among the East European Countries. Although their size is not big, they are expected to grow fast in view of their resource base and also in view of growing opportunities in the 25-member European Union. Recent Trends The past couple of decades have witnessed significant growth in international business. It is a fact that international business was greatly constrained by the oil shock and the restrictive policies pursued by many developing countries during the 1970s, but it was resumed by the mid-1980s and it grew in the subsequent period. Statistics show that between 1983 and 1990, FDI outflow grew at an average annual rate of 27 per cent, which was almost four-fold greater than the growth of world output and around three-fold greater than the growth of world exports. During 1990, the amount of FDI ‘outflow stood at US.$245 billion, over two-thirds of which were accounted for by only five countries, namely, the United States of America, the United Kingdom, Japan, Germany; and France. There were 170,000 foreign affiliates of over 37,000 parent companies. The worldwide sales of these affiliates were approximately US $5.5 trillion, which was greater than the world export of goods and non-factor services (United Nations, 1993). The fast growth in FDI outflows during the 1980s could be attributed to a host of factors. (1) The a International Business : An Overview 9 growing internationalisation of the Japanese economy resulted in the large explosion of FDI from this country; (2) The Phenomenal growth in the demand for Services in the wake of growth in per capita real income. Since many services were not tradable, Foy was the only way to participate in foreign markets. (3) This Period witnesseq more effective moves towards regional integration, as a result Of which both intra-bloc and inter-bloc FDI increased. Table 1.1 shows more recent trends. FD) 1990 to US $ 1150 billion in 2000. During 20 of the flow. In 2005, it was US $ 779 billion, Per cent during 1991-95 to 35.7 per cent di I outflows grew fror 00s, there were ups The annual growth ral luring 1996-2000 but m US $ 245 billion in and downs in the size te ascended from 15.7 Was negative by 5,4 per 1716 billion in 1990 to us US $ 10,672 billion by 2005, The amount of $ 1,271 billion in 2000, Table : Growth In FDI: 1990-2005 Item Valued Current Prices Annual Growth Rate (%) (US $ billion) 1990 2000 2005 1991-1. 995 1: 996-2000 2001-2005 FDI inflows 209 1271 916 20.0 40.2 4.0 FDI outflows 245 1150 779 157 35.7 SA FDI outward stock 1716 5976 10672 10.7 16.8 10.1 Cross-border M&As 151 1144 716 23.3 515 22 Sale of foreign affiliates 5503 15680 22171 10.4 10.9 13.6 Assets of foreign affiliates 5706 21102 45564 13.7 19.2 15.8 Employment in foreign 23.6 45.6 62.0 5.0 14.2 65 affiliates (million) Source : United Nations, World Investment Report, various issues, During 2000s, the size moved up and down. In 2005, it was US $ 916 billion. ‘The total assets of foreign affiliates rose from US $ 5,706 billion in 1990 to US $21,102 billion by 2000 and to US $ 45,564 billion by 2005. Their sales surged up from US $ 5,503 billion toUS $ 15,680 billion and to US. $ 22,171 billion during the same period. The cee in foreign affiliates increased from 23.6 million to 45.6 million and to 62.0 million luring this period, What iS remarkable is that the mergers and acquisitions (M&As) aS hee Ge Of the FDI outflow. In 1990, FDI through cross-border M&AS es bila frenosea: os billion which rose to US $ 1,144 billion in 2000 but fell to a Gana toiSi'SRehGHE looks at the annual growth rate, it rose from 23.3 per cent in riprobaliaveais tRacires In 1996-2000 but fell to 2.2 per cent during 2001-05. A deeper pi cquisitions were more common. 10 International Business : An Overview The other remarkable feature is that owing to the growth in FDI flow in general ang the emergence of MNCs in developing as well as in transition countries in a big way, ‘the share of these countries in FDI flow has increased. The figures in Table 1.2 show that the developing countries in general have improved their share from 36 per cent to 37 per cent in FDI inflows and from 14 per cent to 15 per cent in FDI outflow between 1991-96 and 2005. The respective share of transition economies has risen from 3 to q per cent and from a very negligible figure to 2 per cent during the same period. All this means a cut in the respective share of the developed countries. Along with rapid internationalisation of firms, world trade, both intra-firm and inter- firm, grew manifold. The reduction of tariff and non-tariff barriers under the aegies of GATT and now under the WTO umbrella too gave a fillip to international trade. During two and a half decades beginning from 1980, the value of world trade increased almost fivefold—from US $ 2,031 billion in 1980 to US $ 3,486 billion in 1990, to US $ 6,327 billion in 2000 and to US $ 10.2 trillion in 2005. MNCs have a big role in the increasing volume of trade. However, in recent decades, the small and medium-sized multinationals or the so-cafled mini-multinationals that have come to possess globalising efficiency almost at par with the big organisation, do account for sizeable world trade (UNCTAD, 1993). Again, there has not been any noticeable change in the share of the developed market economies in the world trade. Their share continued to remain at 64 per cent (UNCTAD, 2005). Thus, international business has witnessed a phenomenal growth in the recent past. Advantages of International Business The competitive advantages of international business are as under : 1. High Living Standards—Comparative cost theory indicates that the countries which have the advantage of raw materials, human resources, natural resources and climatic conditions in producing particular goods can produce the products at low cost and also of high quality. Customers in various countries can buy more products with the same amount of money. In turn, it can also enhance the living standards of the people through enhanced purchasing power and by consuming high quality products. 2. Increased Socio-Economic Welfare—International business enhances consumption level, and economic welfare of the people of the trading countries. For example, the people of China are now enjoying a variety of products of various countries than before as China has been actively involved in international business like Coca-Cola, McDonald's range of products, electronic products of Japan and coffee from Brazil. Thus, the Chinese consumption levels and socio-economic welfare are enhanced. ~ 3. Wider Market—International business widens the market and increases the market size. Therefore, the companies need not depend on the demand for the product ina single country or customer's tastes and preferences of a single country. Due to the enhanced market the Air France, now, mostly depends on the demand for air travel of International Business : An Overview a the customers from countries other than France. This is true in case of most of the MNCs like Toyota, Honda, Xerox and Coca-Cola. 4, Reduced Effects of Business Cycles—The stages of business country to country. Therefore, MNCs shift from the country, the country experiencing ‘boom’ conditions. Thus, from the recessionary conditions. 5. Reduced Risks—Both commercial and political risks are reduced for the companies engaged in international business due to Spread in different countries, Multinationals which were operating in erstwhile USSR were affected only partly due to their safer operations in other countries. But the domestic companies of the then USSR collapsed completely. 6. Large-Scale Economies—Multinational companies due to markets produce larger quantities, which provide the benefit of large-scale economies like reduced cost of production, availability of expertise, quality etc. 7. Potential Untapped Markets—international business provides the chance of exploring and exploiting the potential markets which are Untapped so far. These markets provide the opportunity of selling the product at a hi igher price than in domestic markets, For example, Bata sells shoes in the UK at £ 100 (Rs. 8,000) whose price is around Re, 1,200 in India. cycles vary from experiencing a recession to international business firms can escape the wider and larger 8. Provides the Opportunity For and Challenge to Domestic Business— International business firms provide the opportunities to th portunities include technology, management expertise, market intelligence, product developments etc. For example, Japanese firms operating in the US provide these Opportunities to the US companies. This is more evident in th: Countries like India, African countries and Asian countries, Similarly, the MNCs pose challenges to the domestic business initially. Domestic firms develop themselves to meet these challenges. Thus, the opportunities and challenges help the domestic companies to develop. Maruti helped Telco to come up with Tata Indica, Foreign Universities helped IIMs, IITs and Indian Universities to enhance their curricula, 23 business lea ie domestic companies. These ie case of developing ion of Labour and Specialisation—As mentioned earlier, international ds to division of labour and specialisation. Brazil specialises in coffee, Kenya in tea, Japan in automobiles and electronics, India in textile garments etc. 10. Economic Growth of the World—Specialisation, division of labour, enhancement of productivity, posing challenges, development to meet them, innovations and creations to meet the competition lead to overall economic growth of the world Nations. International business particularly helped the Asian countries like Japan, Taiwan, Korea, Philippines, Singapore, Malaysia, and the United Arab Emirates. 11, Optimum and Proper Utilisation of World Resources—International business provides for the flow of raw materials, natural resources and human resources from the counties where they are in excess supply to those countries which are in short g 12 International Business : An Overview supply or need most. For example, flow of human resources from India, consumer goods from the UK, France, Italy and Germany to developing countries. This, in turn, helps in the optimum and proper utilisation of world resources. 12, Cultural Transformation—International business benefits are not purely economical or commercial, they are even social and cultural. These days, we observe °that the West is slowly tending towards the East and vice versa. It does mean that the good cultural factors and values of the East are acquired by the West and vice versa, Thus, there is a close cultural transformation and integration. 13. Knitting the World into a Closely Interactive Traditional Village— International business, ultimately knits (he global economies, societies and countries into a closely interactive and traditional village where one is for all and all are for one. Barriers/Problems of International Business As is said that, “Wife /s not a bed of roses’; international business is not all that lovely. It has its problems. The important problems include: 1. Political Factors—Political instability is the major factor that discourages the spread of international business. For example, Iraq-Kuwait war, dismantling of erstwhile USSR, Civil Wars in Fiji, Malaysia, and Sri Lanka, military coups in Pakistan, Afghanistan, frequent changes of political parties in power and thereby changes in government policies in India etc., created political risks for the growth of international business. Also, Indo- Pak Summit at Agra in July, 2001 ended in a no compromise situation, which affected international business. Though there are political problems between India and China, business houses of these two countries have developed opportunities for Indo-China business relations. 2. Huge Foreign Indebtedness—The developing countries with less purchasing power are burried into a debt due to the operations of MNCs in these countries. For example, Mexico, Brazil, Poland, Romania, Kenya, Congo, and Indonesia. 3. Exchange Instability—Currencies of countries are depreciated due to imbalances in the balance of payments, political instability and foreign indebtedness. This, in turn, leads to instability in the exchange rates of domestic currencies in terms of foreign currencies. For example, Zambia, India, Pakistan, Philippines depreciated their currencies many times. This factor discourages the growth of international business. 4, Entry Requirements—Domestic governments impose entry requirements to multinationals. or example, an MNC can enter Eritrea only through a joint-venture with a domestic company. However, with the establishment of World Trade Organisation (WTO), many entry requirement by the host governments are dispensed with. 5. Tariffs, Quotas and Trade Barriers—Governments of various countries impose tariffs import and export quotas and trade barriers in order lo protect domestic business- Further these barriers are imposed based on the political and diplomatic relations between or among Governments. For example, China, Pakistan and the USA (before 1998) imposed gs a tional Business : An Overview 13 Interna’ iffs quotas and barriers on imports from India. But the erstwhile USSR ae liberalised imports from India, Corruption—Corruption has become a Internat ional phenomenon, The ibes and kickbacks discourage the foreign investors to ex; S Far tcatic Practices of Government—Bureaucratic ena delay sanctions, granting permission and licence: 8 best example is Indian Government before 1991, 8, Technological Pirating—Copying the original technology, Producing imitative products, imitating other areas of business Operations were common in Japan during 1950s and 1960s, in Korea, India ete. This practice invariably alarms the foreign companies against expansion. : i 9. Quality Maintenance—International business firms have to meticulously maintain quality of the product based on quality norms of each Country. The firms have to face severe consequences, if they fail to conform to the Country standards, Consumers’ forums associations also inspect quality in addition to the government machinery in various foreign countries. 10. High Cost—Internationalising the domestic business involves market survey, Product improvement, quality upgradation, Managerial efficiency and the like, These activities need larger investments and involve hi igher cost and risk, Hence, most of the business houses avoid internationalising their business, and present higher ‘pand their Operations, attitudes and practices S to foreign companies, Factors Leading to Growth in International Business Or Drivers of International Business Various economies including the former communi their economies to the rest of the globe. The shifts pusiness have been at a fast rate after 1990s, The external environmental factors have tbuting significantly for the remarkable rise in global business. The drivere of globalization/factors Contributing to the globalisation include establishment of WTO, emergence and growth of regional integration, decline in trade barriers, decline in investment barriers, increas e in FDI, technological changes and growth of MNCs. Establishment of World Trade Organisation—Governments of the member

    You might also like