International Business Management

Unit-1
Introduction

❏ What is Business?

❏ What does international business mean?

Definition

❏ Exchange of goods and services that conducts its operations across national
borders, between two or more countries.
❏ Global trade of goods/services or investment.
Drivers of International Business
Benefits of International Business

Reduced effects
Increased Socio- of business
High living Wider Market
economic welfare cycles
Standards

Provides the
Large scale
Reduced opportunity to
economies Potential
Risks domestic markets
untapped market

Optimum
and proper
Division of labour Economic Cultural
utilisation of
and specialization growth of a world transformation
world
at large resources
Challenges
Language barriers
High competition among
nation
Legal problems
Exploitation of
developing nations
Dumping problem
Scarcity of goods in the
exporting nations
Conversion of currency

Cultural issues
Tariff payment
Major Trends
Continue….
Continue…
Changing Environments of International Business

These factors influence the decision-making process of an international

business firm.

❏ Political Environment
❏ Legal Environment
❏ Cultural Environment
❏ Economic Environment
❏ Technological Environment
❏ Competitive Environment
Political Environment
Economic Environment

● Economic environment can be described as the global

factors that are outside of the control of individual
organizations but that can affect the way that businesses
operate.
● These factors include unemployment rates, inflation rates,
and labor costs.
● a country’s attractiveness for foreign businesses
● Developed or industrialized,
● the less developed or third world & the new emerging economies.
TECHNOLOGICAL ENVIRONMENT

❏ Level & acceptance of technological innovation in diff

countries..
❏ Materials & machines used in manufacturing goods & services
❏ Acceptance of organizations to new technology &
❏ Adoption of new technology by consumers
❏ The pace of technological changes & technological
obsolescence
❏ Restrictions & facilities for technology transfer
CULTURAL ENVIRONMENT

“ Culture consists the thoughts and behavioral patterns

customs, habits, beliefs and values, the common view points
that bind them together as a social entity”.
It has been described as a shared, commonly held body of
general beliefs & values that determine what is right for one
group
one of the most difficult to understand.
B’coz it is essentially unseen
Culture in International Business
❏ Knowledge of foreign culture is important for int’l firms.
❏ Marketers who ignore cultural differences risk failure.
❏ Language
❏ Colours
❏ Customs and Taboos
❏ Values
❏ Aesthetics
❏ Time
❏ Religious Beliefs
LEGAL ENVIRONMENT
● Rule and laws that regulate behavior of individuals and
organization.
● Various systems of law
1.Islamic Law
2.Common Law
3.Civil Law or Code Law (contracts, property, family)
4.Marxist legal system (significant forces of a society with those who have authority over these forces
shape the society’s legal system)
Competitive Environment
❏ Type & degree of competition that exists in a given country.
● It can come from public or private sector,
● large or the small organizations,
● domestic or global &
● traditional or new competitors
❏ For a domestic firm, sources of competition might be well understood.
❏ This isn’t the case when a person
moves to compete in the new
environment.
Country Attractiveness
❖ Prefer a country that is
● less costly - related with investment
● more profitable - dependent on resources.
● has fewer risks - associated with the environment

❖ The political, economic and legal environment of a

country clearly influences the attractiveness of that
country
Top Countries to Start a Business as a Foreigner
2020 2023
New Zealand
Ireland
Singapore
Switzerland
Denmark

Hong Kong United Arab Emirates

Republic of Korea or South Korea Singapore
United States of America
United States
Georgia

United Kingdom

Norway

Sweden
Country Attractiveness Analysis
❏ A country attractiveness assessment is
based on two dimensions
● Market and industry opportunities,

● Country risks
Country Attractiveness Analysis
❏ Market opportunities,

❏ Measures the potential demand in the country for a firm’s products or

services based on:
● ▪Market size Growth
● ▪Quality/Quantity of demand
❏ Industry opportunities
● Determines profitability potential of a company’s presence in a country given the
following factors:
❏ Quality of industry competitive structure (Porter’s five-force Industry Analysis Framework)
❏ Resource availability (Porter’s diamond framework)
Country Risks
❏ Risks may be of various types.
❏ A country that is more stable in terms of political, social, legal, and
economic conditions is more attractive for starting a business:
❏ Political Risks - regulations resulting from political action of governments or societal crisis and unrest

❏ Economic Risks - economic business drivers can vary and therefore put profitability at stake
❏ Competitive Risks - cartels and networks as well as corrupt practices
❏ Operational Risks - government regulations and bureaucracies, costly taxation and infrastructure is
not reliable
GLOBALIZATION
● Globalization is the process of interaction and integration
among people, companies and governments worldwide.
Globalization has grown due to advances in transportation and communication technology.
● Globalisation refers to the process of establishing and
increasing the interconnectedness and interdependence between
or among nations in the world.
● It enhances a stronger integrated and interdependent world
economy. It brings about world’s economic, social and cultural
integration.
Features
❏ - Globalisation is a phenomenon that views the world as if it is without borders or
boundaries.
❏ - Easy flow of goods (raw, semi-finished and finished) and services across borders.
❏ - High interconnectedness and interdependence.
❏ - Easy financial and information flow among nations.
❏ - Exchange of cultural values.
❏ - High exchange of knowledge between nations.
❏ - Flow of resources (human and non-human) between countries.
❏ - Advanced means of transportation from one nation to another- Advanced forms of
communication including internet.
❏ - Relatively easy movement and/or settlement of people away from their countries of
origin.
❏ - Creation of enabling environment for students to study in different countries.
❏ - Easy access to foreign markets.
.
Trends in Globalization

1. Shifts in Production and Labor Markets

2. Rapid advances in Technology

3. Climate Change
Effects of Globalization

Increasing Competition

Opening larger, more diverse Markets

Increased flow of Trade, Capital, Information and People

Sharing Technology

Sharing Knowledge

Promoting a Diversified Workforce

Benefits of Globalization
Increased Flow of Capital
Better Products at Lower Prices
Collaboration and Shared Resources
Cross-Cultural Exchange
Spread of Knowledge and Technology
Quick Technological Advances
Increased Household Income
Increased Open-Mindedness and Tolerance
Challenges of Globalization

Exploitation - benefits from resources

High Investment Costs

Confusing Local Systems

Weak Regulation

Immigration Challenges

Localized Job Loss

International Institutions - UNCTAD
❏ United Nations Conference on Trade and
Development is a United Nations body - dealing with
development issues, particularly international trade:
th
Established on 30 Dec. 1964, its headquarters in Geneva
❏ It deals with trade, investment and development issues.

❏ Promotes economic cooperation and integration among

its member countries
Principles - UNCTAD

❏ Freely trade with other countries.

❏ Principles of sovereign equality of states
❏ No discrimination.
Functions of UNCTAD

❏ To promote international trade to accelerating economic development.

❏ To formulate principles and policies.
❏ Proposals for putting its principles and policies into effect,
❏ To negotiate trade agreements.
❏ To facilitate the coordination - U.N. institutions in international trade.
❏ To function as a centre in the development policies of govts.
Achievements of UNCTAD

❏ Tariff reclassification: customs cooperation council - favour developing countries

❏ Integrated Programme on Commodities
❏ Reducing debt burden
❏ Commodity development facility- developing countries- processing, marketing
skills, product adaptation and infrastructure facilities.
IMF – Int’l Monetary Fund
❏ IMF was established at a United Nations Monetary and Financial Conference, known
as Bretton Woods Conference, on 22 July 1944. Headquarters @Washington D.C.,
U.S.A..
❏ The IMF is responsible for (Roles)
❏ Promoting international monetary cooperation;
❏ Facilitating the expansion and balanced growth of international trade;
❏ Promoting exchange stability;
❏ Assisting in the establishment of a multilateral system of payments; and
❏ Providing resources available to members experiencing BOP difficulties.
 Role of IMF
• To promote international monetary cooperation through a permanent institution which provides the
machinery for consultation and collaboration on international monetary problems.

• To facilitate the expansion and balanced growth of international trade, and to contribute thereby to
the promotion and maintenance of high levels of employment and real income and to the development of
the productive resources of all members as primary objectives of economic policy.

• To promote exchange stability, to maintain orderly exchange arrangements among members, and to
avoid competitive exchange depreciation.

• To assist in the establishment of a multilateral system of payments in respect of current

transactions between members and in the elimination of foreign exchange restrictions which hamper the
growth of world trade.

• To give confidence to members by making the general resources of the Fund temporarily available to
them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their
balance of payments without resorting to measures destructive of national or international prosperity.

• In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the
international balances of payments of members.
IBRD – International Bank for Reconstruction and
Development
Referred to as the World Bank –

❏ an international financial institution

❏ assisting the development of its member nations,
❏ promoting and supplementing pvt foreign investment
❏ promoting long-range balance growth in int’l trade.
❏ providing guarantee for loans granted to small and large units and other projects of member
countries
❏ promote capital investment in member countries
❏ provide long-run capital to member countries for economic reconstruction and development
Establishment of WTO
Commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations
on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT).
headquartered in Geneva, Switzerland.

It is the largest international economic organization in the world.

WTO is the only international organization dealing with the global rules of trade.
Functions of WTO

❏ The WTO’s overriding objective is to help trade flow smoothly, freely and
predictably. It does this by:
❏ administering trade agreements
❏ acting as a forum for trade negotiations
❏ settling trade disputes
❏ reviewing national trade policies
❏ building the trade capacity of developing economies
❏ cooperating with other international organizations