INTRODUCTION OF

INTERNATIONAL
BUSINESS AND ENTRY
STRATEGIES
UNIT 1
BY
SWATI ROHATGI
SCENARIO 1: An American might drive to work in a car
designed in Germany that was assembled in Mexico by Ford
from components made in the United States and Japan that
were fabricated from Korean steel and Malaysian rubber. She
may have filled the car with gasoline at a BP service station
owned by a British multinational company. The gasoline could
have been made from oil pumped out of a well off the coast of
Africa by a French oil company that transported it to the United
States in a ship owned by a Greek shipping line. She may turn
on the car radio, which was made in Malaysia by a Japanese
firm, to hear a popular hip-hop song composed by a Swede
and sung by a group of Danes in English who signed a record
contract with a French music company to promote their record
in America…………………………………………………………………
Definition of International Business
 The exchange of Goods & Services, Resources, Knowledge, & Skills,
among individuals & businesses in two or more countries.

 Transaction that are carried out across national borders to satisfy the
objectives of individuals and organization

 All Commercial transactions that take place between two or more

countries.
 Eg., Apple, Mc Donald's, Coca-Cola
Nature of IB

 Accurate & timely Information

 The size of the international business

 Market segmentation

 International markets have more potential than domestic markets

Features/ Characteristics of IB
 Large scale operations

 Integration of economies

 Dominated by developed countries and MNCs

 Benefits to participating countries

 Keen competition

 Special role of science and technology

 International restrictions
 TATA MOTORS INTERNATIONAL OPERATIONS

Through subsidiaries and associate companies, Tata Motors has operations in

the UK, South Korea, Thailand, South Africa and Indonesia. Among them is
Jaguar Land Rover, acquired in 2008.

In 2004, it acquired the Daewoo Commercial Vehicles Company, South Korea’s

second largest truck maker. The rechristened Tata Daewoo Commercial
Vehicles Company has launched several new products in the Korean market,
while also exporting these products to several international markets.

Today two-thirds of heavy commercial vehicle exports out of South Korea are
from Tata Daewoo. In 2006, Tata Motors entered into joint venture with Thonburi
Automotive Assembly Plant Company of Thailand to manufacture and market
the company’s pickup vehicles in Thailand, and entered the market in 2008. Tata
Motors (SA) (Proprietary) Ltd., Tata Motors' joint venture with Tata Africa Holding
(Pty) Ltd. set up in 2011, has an assembly plant in Rosslyn, north of Pretoria.
The plant can assemble; semi knocked down (SKD) kits, light, medium and
heavy commercial vehicles ranging from 4 tonnes to 50 tonnes.
Scope of IB

 International Marketing

 International Finance and Investments

 Foreign Exchange

 Global HR
Importance of IB
 Earn foreign exchange

 Optimum utilization of resources

 To spread business risks

 Improve organization's efficiency

 Get benefits from Government

 Expand and diversify

 Increase competitive capacity

Advantages of IB

 Faster growth

 Access to cheaper inputs

 Increased quality and efficiency

 New market opportunities

 Diversification
DISNEY DIVERSIFICATION
Disadvantages of IB

 Increased costs

 Foreign regulations and standards

 Delays in payments

 Complex organizational structure

MAIN TYPES OF INTERNATIONAL
BUSINESS

(i) Export Trade – It is selling of goods and services to foreign countries.

(ii) Import Trade – It is buying goods and services from other countries.

(iii) Entreport Trade – It is import of goods and services for re-export to other
countries.
PROCESS OF EVOLUTION

The process of evolution of a domestic firm into an MNC involves three successive
stages:
1. TRADE
2. ASSEMPLY OR PRODUCTION
3. INTEGRATION
DETERMINANTS OF ENTRY MODE

1. Subservience of the corporate objective

2. Corporate capability

3. Host country environment

4. Perceived risk
TRADE MODES
Countertrade: Counter-trade is a sort of bilateral trade where one set of goods is exchanged for
another set of goods. In this type of external trade, a seller provides a buyer with deliveries and
contractually agrees to purchase goods from the buyer equal to the agreed percentage of the
original sale contract value
MERITS DEMERITS
Absence of tariff barriers Non-conforming with the norms of the multilateral
trading system
Stabilisation of export earnings Absence of multilateral surveillance leading to
distortions in markets and price

Scope for benefits from trade diversification Lack of encouragement for quality improvement
Possibility for flow of technology, especially in buy- Lack of double coincidence of goods to be traded
back agreements

Some advantages similar to those of loans Balancing of trade sometimes turns difficult

No need for foreign exchange for making imports

Avoiding distortions caused by unsuitable exchange

rate policy
FORMS OF COUNTERTRADE

 Barter- Barter,

 Counter purchase (Parallel Barter)

 Compensation Trade (Buyback)

 Switch Trading

 Offset

 Clearing Agreement
TRADE MODES

LICENSING
Licensing is an arrangement by which a firm transfers its intangible property such as
expertise, know-how, blueprints, technology, and manufacturing design to its own unit, or to
a firm, located abroad. It is also known as technical collaboration.
Merits
• A licensor can reap profits
• less risky
• licensee can upgrade production technology
Demerits
• Can reduce global consistency of quality
TRADE MODES

FRANCHISING
Franchising is a form of technical collaboration in which the franchisee makes use of
intellectual property rights, like trademarks, copyrights, business know-how, managerial
assistance, geographic exclusivity, or of a specific set of procedures of the franchiser for
creating the product in question.
Merits
• Help maintain consistency
• less risky
• licensee can upgrade production technology
Demerits
• Costly
TRADE MODES

MANAGEMENT CONTRACTS
In a management contract, one company supplies the other with managerial expertise.
Such agreements are normally signed in case of turnkey projects where the host country
firm is not able to manage day to day affairs of the project, or in other cases where the
desired managerial capabilities are not available in the host country. The transfer includes
both technical expertise and managerial expertise.
Merits
• Help to utilise specialised expertise
Demerits
• Misunderstanding between foreign and local managers
TRADE MODES

TURNKEY PROJECTS
In a turnkey project agreement, a firm agrees to construct an entire plant in a foreign
country and make it fully operational. It is known as turnkey because the licensor starts the
operation and hands over the key of the operating plant to the licensee.
Merits
• Allows specialisation
• Benefits host government
Demerits
• Misunderstanding between foreign and local managers
 FOREIGN INVESTMENT
FOREIGN PORTFOLIO INVESTMENT, FOREIGN DIRECT INVESTMENT AND MERGERS &
ACQUISITIONS
Foreign portfolio investment is an investment in the shares and debt securities of companies
abroad in the secondary market merely for sake of returns and not in the interests of the
management of the company.

Foreign direct investment in form of green-field investment is an investment in the equity

capital of a company abroad for the sake of the management of the company or
investment abroad through opening of the branches.

M&As are either outright purchase of a running company abroad or an amalgamation with
a running foreign company.
 STRATEGIC ALLIANCE

Strategic alliance is technical/financial collaboration with very specific objectives. It can

take many different forms, but they often fall into three categories:
1. JOINT VENTURE : A joint venture is a child company of two parent companies. It’s
maintained by sharing resources and equity with a binding agreement. Whether it’s
formed for a specific purpose or an ongoing strategy, a joint venture has a clear
objective, and profits are split between the two companies.
2. Equity Strategic Alliance An equity strategic alliance occurs when one company
purchases equity in another business (partial acquisition), or each business purchases
equity in each other (cross-equity transactions).
3. Non – Equity Strategic Alliance In a non-equity strategic alliance, organizations create
an agreement to share resources without creating a separate entity or sharing equity.
Non-equity alliances are often more loose and informal than a partnership involving
equity. These make up the vast majority of business alliances.
 Major Difference between
Domestic and International Business
BASIS DOMESTIC BUSINESS INTERNATIONAL BUSINESS
Nationality of People or organisations from one People or organisations of different countries
buyers and nation participate in domestic participate in international business transactions.
sellers business transactions.
Nationality of Various other stake-holders such as Various other stakeholders such as suppliers,
other suppliers, employees, middlemen, employees, middlemen, shareholders and
stakeholders shareholders and partners are partners are from different nations.
usually citizens of the same country.
Mobility of The degree of mobility of factors of The degree of mobility of factors of production
factors of production like labour and capital is like labour and capital across nations is
production relatively more within a country. relatively less
Customer Domestic markets are relatively more International markets lack homogeneity due to
heterogeneity homogeneous in nature. differences in language, preferences, customs,
across markets etc., across markets.
 Major Difference between Domestic
and International Business – cont.
BASIS DOMESTIC BUSINESS INTERNATIONAL BUSINESS
Differences in Business systems and practices are Business systems and practices vary
business systems relatively more homogeneous within considerably across countries.
and practices a country.
Political system Domestic business is subject to Different countries have different forms of
and risks political system and risks of one political systems and different degrees of risks
single country. which often become a barrier to international
business.
Business Domestic business is subject to International business trans-actions are subject
regulations and rules, laws and policies, taxation to rules, laws and policies, tariffs and quotas,
policies system, etc., of a single country. etc. of multiple countries.
Currency used in Currency of domestic country is International business trans-actions involve use
business used. of currencies of more than one country.
transactions
DISCUSSION: The world's poorest countries are at a
competitive disadvantage in every sector of their economies.
They have little to export. They have no capital; their land is of
poor quality; they often have too many people given available
work opportunities; and they are poorly educated. Free trade
cannot possibly be in the interests of such nations. Discuss.