INTERNATIONAL BUSINESS TERMINOLOGY/ TERMS:

a) Multinational Business/ Corporations (MNC’s)

Multinational Corporation (MNC) or Transnational
Corporation (TNC) is a corporation or enterprise that manages production or delivers
services in more than one country. It can also be referred to as an International
Corporation.
The first modern MNC is generally thought to be the British East India Company,
established in 1600. Very large multinational have budgets that exceeds some national
GDPs. Multinational corporations can have a powerful influence in local economies as
well as the world economy and play an important role in international relations and
globalization.

b)Global Company’s:
A global firm’s management :
i) Searches the world for 1. Market Opportunities 2. Threats for competitors 3.
Sources of products raw materials and financing 4. Personnel.

In other words it has global vision

ii) Seeks to maintain a presence in key markets.
iii) Looks for similarities, not differences among markets
iv) Keep similarities with the market where they are doing business.

c) Transnational Company’s :
i) That is formed by a merger ( 50-50 ownership)
ii) Two firms approximately of the same size that are from two different countries
iii) Trying to achieve Economies of scale through global integration of it’s functional
areas.

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Advantages of MNCs
1. Increase in output or total production (GNP)
2. Increase in employment and earnings
3. Increase in government revenue as a result of taxation
4. Spillover effects through greater competition, training of manpower, link up with
enterprises through subcontracting and other arrangements, etc.
5. Demonstration effect involving such things as learning by doing etc
6. Increase in efficiency as well as well as product quality due to the technology,
expertise, etc which MNCs bring with them
7. Increase in exports and export earnings as a consequence of the marketing channels
which thy control which allow LDCs to gain access to world markets.

Problems or Disadvantages of MNCs

1) Difficult to control: Many MNCs possess greater expertise, negotiating power and
resources than the countries that they are bargaining with.
2) Source of tension and conflict: They tend to operate on world wide basis
and, consequently, would be expected to follow a strategy which would generate the
highest global profit. This may in some cases mean that branch plants in particular
host countries may not be functioning as profitably or as efficiently as possible and,
consequently, may not benefit the local economy very much.
3) Greater Market share: Their control over marketing channels gives them a great
deal of power over the flow of trade and also the benefits emanating from it.
4) Operate in oligopolistic ology
Example of MNC,s
1) Fast Food Companies- McDonalds and Yum Brands
2) Vehicle Manufacturers- General Motor and Toyota
3) Consumer Electronics Companies- Samsung, LG and Sony

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 4) Energy Companies- ExxonMobil and BP
5) Other Common MNC,s : i. BASF ii. Bayer iii. BIC iv. BP ( British Petroleum)
v. Caterpillar Inc. vi. Coca-cola vii. Epson viii. Ericson ix. Faber castle x. Honda xi.
HSBC xii. IBM xiii. Intel Corporation xiv. JPMorgan Chase &co xv. Lexmark xvi.
Maggi xvii. Mercedes Benz xviii. Microsoft xix. Motorola xx. Nestle xxi. Nike Inc.
xxii. Nissan xxiii. Novartis xxiv. Oracle Corporation xxv. Panasonic corp. Pepsi co.
xxvi. Philips. Xxvii. Procter & Gamble. Xxvii. Reebok xxviii. Sonofi Aventies. Xxix.
Siemens. Xxx. Sony. Xxxi. Toyota xxxii. Uniliver xxxiii. Wall- Mart.

MNC,s typically have subsidiaries or Joint Ventures in each national market

WHY ENTER FOREIGN MARKET?

1) To increase Profits and Sales by:
i) Enter New Markets
ii) New Market Creation
iii) Preferential Trading Arrangements
iv) Faster Growing Markets
v) Improved Communication
vi) Obtain Greater Profits
vii) Grater Revenue
viii) Lower Cost of Goods Sold
ix) Higher Overseas Profits as an Investment Motive
x) Acquire Products for the Home Market

2) To Protect Markets, Profits and Sales By:-

i) Protect Domestic Market
ii) Follow Customers Overseas
iii) Using Foreign Production to Lower Costs
iv) Protect Foreign Markets
v) Lack of Foreign Exchange
vi) Local Production by Competitors
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 vii) Downstream Markets
viii) Protectionism
ix) Guaranty Supply of Raw Materials
x) Acquire Technology and Management know how
xi) Geographic diversification
xii) Satisfy Management’s Desire for Expansion
How to Enter Foreign Markets:
The activities can be divided into two categories:
A) Exporting to a foreign Market
Merits of Exporting
a) Selling a portion of regular business to overseas
b) Requires little Investments
c) Relatively free of risks
d) It is an excellent means of getting a feel for international business without committing
any great amount of human or financial resources
Demerits of Exporting
a) Pay commission to the Exporters
b) Lost can occurred when exporters decide to change their sauce of supply
c) Firms gain little experience fro these transactions
For Exporting management must choose between direct and indirect
exporting:
1.Direct Exporting: To engage in direct exporting, management must assign the job
of handling the export business to someone within the firm. The simplest arrangement is
to give someone, usually the sales manager, the responsibility for developing the export
business. Domestic employees may handle the billing, credit, and shipping initially, and if
the business expands, a separate export department may be set up.
2. Indirect Exporting: Exporters based in their home country will do the work.
Among the exporters available are i) Manufacturers export agent-who sell for the
manufacturer ii) Export commission agents- who buy for their overseas customers iii)

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 Export Merchants- who purchase and sell for their own account iv) International firms-
which use the goods overseas( Mining, construction, petroleum companies)
B) Foreign Manufacturing
i) Wholly owned subsidiary: the Company that wishes to own a foreign subsidiary outright
may 1) start from the ground up by building a new plant 2) acquire a going concern 3)
purchase its distributor, thus obtaining a distribution network familiar with its products.
ii) Joint Venture
iii) Licensing agreement
iv) Franchising
v) Contract Manufacturing
Principal issues over government policy toward International Trade:
1) Whether a national government should intervene to protect the country’s domestic
firms by taxing foreign goods entering the domestic markets or constructing other
barriers against imports.
2) Whether a national government should directly help the country’s domestic firms
increase their foreign sales through export subsidies, government –to-government
negotiations, and guaranteed loan programs.
Physical and Societal Influences on Protectionism and companies
Competitive Environment:
1) Political policies and legal practices
2) Cultural values, attitudes and beliefs
3) Economic forces
4) Geographical influences
Reasons for Governmental intervention in trade:
It may be basically classified into two categories:
1) Economic Rationales
i) Prevent unemployment
ii) Protect infant industry
iii) Promote Industrialization

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 iv) Improve position compared to other countries-Balance of payments adjustment,
Comparable Access or “Fairness”, Price Control Objectives
2) Non economic Rationales
i) Maintain essential industries
ii) Deal with unfriendly countries
iii) maintain spheres of influences
iv) Preserve national identity

1) The National Defense Arguments: Holds that a country must be self –

sufficient in critical raw materials, machinery, and technology or else be vulnerable
/defenseless to foreign threats.
The national defense argument appeals to the general public, which is concerned that its
country will be pushed around by other countries that control critical resources.
2) The Infant Industry Argument: It holds that a government should guarantee
an emerging industry a large share of the domestic market until it becomes efficient
enough to compete against imports.
It is based on the logic that although the initial output costs for an industry in a given
in a country may be so high as to make it noncompetitive in world markets ,over time
the costs will decrease to a level sufficient to achieve efficient production.
Although it is reasonable to suppose costs to decrease over time, they may not go down
enough, which poses two problems for protecting an industry
i) Governments have difficulty identifying those industries that have a high probability
of success.
ii) Even if policy makers can ascertain which industries are likely to succeed, it does
not necessarily follow that companies in those industries should receive governmental
assistance.
For the infant industry argument to be fully viable, future benefits should exceed early
costs.
3) Industrialization Arguments: Countries seek protection to promote
industrialization because that type of production
i) Brings faster growth than agriculture
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 ii) Brings in investment funds
iii) Diversifies the economy
iv) Brings more income than primary products do
When a country shifts from agriculture to industry, effects in the
following way:
i) Demands on social and political services in cities may increase
ii) Output increases if the marginal productivity of agricultural workers low
iii) Development possibilities in the agricultural sector may be overlooked
3) Maintenance of Existing Jobs
3) Strategic Trade Theory
4) National Trade Policy
5) Industrial Policy
6) Public Choice Analysis

BARRIERS TO INTERNATIONAL TRADE

Tariff: is a tax placed on good involved in international trade.
Reasons of tariff: 1) It raises revenue for the national government.
2)Increase the demand for domestically produced substitute goods.
Types of Tariff: 1) Ad Valorem tariff: is assessed as a percentage of the market value of
the imported good.
2) A specific tariff: is assessed as a specific amount per unit of weight or other standard
measures
3) A compound tariff: Combination of ad valorem & specific tariff

NONTARIFF BARRIRS: (NTB)

1) Quotas
2) Product and testing standards
3) Restricted access to distribution networks
4) Public sector procurement polices

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 5) Local purchase requirements
6) Regulatory controls
7) Currency controls
8) Investment control

QUANTITIVE NTB:
a) Quotas-i)Tariff rate quotas-duty free or low rate duty ii) Global-Amount is fixed
without regard to source iii)Discriminatory-Categorize

b) Voluntary export restraints-Recently because of the general agreement amongst

nations against imposing quotas unilaterally, governments have negotiated VERs with
other countries.
c) Orderly Marketing Arrangement-Usually , they stipulate the size of import or
export quotas that each nation will have for a particular good.
d) Embargoes
e) Numerical Export Controls
NONQUANTITIVE NTBS
a) Direct government participation in trade:
i) Subsidy ii) Buy domestically iii) Import licenses iv) Manipulation of exchange rate v)
Local content
b) Customs and other administrative Procedures:
i) Tariff classification
ii) Documentation requirements
iii) Product valuation Standards
iv) Health, safety, and product quality
v) Packaging and labeling
vi) Product testing methods
Promotion of International Trade:
1) Subsidies 2) Foreign Trade zone 3) Export Financing Programs
Controlling Unfair Trade Practices
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 1) Countervailing duties: is an ad valorem tariff on an imported good that is imposed
by the importing country.
2) Antidumping Regulations
Dumping: It is the selling by a firm of its products, outside its domestic market at a price
below those it charges in its domestic market.

Anti dumping duty: A tax on the dumped imported goods which was equivalent to the
difference between the lower price and the higher price charged in the home market.

Strategic Alliance: It is an agreement between companies that is of strategic importance to

the competitive viability of one or both. The alliance may a verity of operational forms, such
as joint ventures, licensing, management contracts, minority ownership in each other’s
company, or long term contractual arrangements.