Nature of International Business

Presented By: PGDM From Roll No. 1 to 23 Presented to: Mrs. Monika Sharma.

1

What is International Business (IB)?
International business is business whose activities are carried out across national borders, It includes:  Not only international trade  Foreign manufacturing  But also the growing service industry in areas such as: a) Transportation, Tourism, b) Advertising, Construction, Retailing etc.

2

Importance of IB
Every company is trying to expand its business by entering foreign markets. IB helps in the following ways:1) Helps As Growth Strategy, 2) Technology Advantages, 3) New Business Opportunities, 4) Earning Foreign Exchange, 5) Helps In Mutual Growth.

3

each of which formulates its own business strategy based on perceived market differences.  International company (IC) is a global or multidomestic company.  Global company (GC) is an organization that attempts to standardize and integrate operations worldwide in most or all functional areas.  Multidomestic company (MDC) is an organization with multicounty affiliates. many refer to this as business conducted with in a foreign country.Different terms of IB  Foreign business denotes the operations of a company outside its home or domestic market. 4 .

Difference Between IB And Domestic Business International business differs from domestic business in that a firm operating across borders must deal with the forces of three kinds of environments—domestic. 5 . and international. In contrast. a firm whose business activities are carried out within the borders of one country needs to be concerned essentially with only the domestic environment. foreign.

6 . Legal. On the other hand. finance. and people) and the activities of the organization (personnel.Influence of External and Internal Environmental Forces The External Forces are commonly called uncontrollable forces. production. Financial. Distributive. It consits of the following:  Competitive. and marketing). such as the factors of production (capital. raw materials. Socioeconomic. The elements over which management does have some control are the internal forces. Physical etc. Economic.

Types of IB  Domestic Environment: It is all the uncontrollable forces originating in the home country that influence the life and development of the firm.  Foreign Environment: The forces in this environment are the same as those in the domestic environment except that they occur outside the firm’s home country. (2) Between the foreign environmental forces of two countries when an affiliate in one country does business with customers in another. • International Environment: This environment consists of the interactions (1) Between the domestic environmental forces and the foreign environmental forces. 7 .

 Establishing business anywhere and finding employment was easy and one can say that trade was really free between countries around this period.  The 18th Century saw the shift towards liberalism.HISTORY OF INTERNATIONAL BUSINESS  International trade has a rich history starting with barter system being replaced by Mercantilism in the 16th and 17th Centuries. the countries in the west say extensive move towards economic liberty where in quantitative restrictions were done away with and customs duties were reduced across countries. which was the international monetary currency of exchange.  All currencies were freely convertible into Gold. Around 1913. 8 .

9 .  Today the understanding of international trade and the factors influencing global trade is much better understood. The need to reduce the pressures of economic conditions and ease international trade between countries gave rise to the World Economic Conference in May 1927 organized by League of Nations where in the most important industrial countries participated and led to drawing up of Multilateral Trade Agreement.

and foreign international concerns have been increasing rapidly in recent years.  The expanding importance of foreign-owned firms in local economies came to be viewed by a number of governments as a threat to their autonomy. as have the levels of foreign direct investment (FDI) and exporting. 10 . However.S. there has been a marked liberalization of government policies and attitudes toward foreign investment in both developed and developing nations since the early 1980s.GROWTH OF INTERNATIONAL FIRMS AND INTERNATIONAL BUSINESS  The size and the number of U.

from a foreign origination point.  Importing: The transportation of any good or service into a country or region.Foreign Direct Investment and Exporting Are Growing Rapidly  Foreign direct investment(FDI) : Direct investments in equipment. does not include mere foreign investment in stock markets. structures. and organizations in a foreign country at a level that is sufficient to obtain significant management control. 11 .  Exporting: The transportation of any domestic good or service to a destination outside a country or region.

technology. labor. and capital. information. 12 .What is Globalization? The most common definition and the one used in international business is that of Economic Globalization —the tendency toward an international integration of goods. or the process of making this integration happen.

13 .

political demonstrations. are leading international firms to globalize their operations (1) Political (2) Technological (3) Market (4) Cost (5) Competitive. management boardrooms. DRIVERS OF GLOBALIZATION Five major kinds of drivers. parliaments. and labor union meetings. 14 . all based on change. Internet chat rooms.What Is Driving the Globalization of Business? Globalization is discussed everywhere—television shows.

15 . not only because it is theoretically compelling but also because it has been demonstrated in practice more people have become better off at a faster pace in the past 60 year.  Free Trade Promotes More and Better Jobs: Expanded trade is also linked with the creation of more and better jobs.Arguments Supporting Globalization  Free Trade Enhances Socioeconomic Development: Free trade is the best strategy for advancing the world’s economic development is one of the few propositions on which almost all economists agree.

16 .  Some fundamentally oppose the very process and outcomes of globalization on ideological grounds. and they express a correspondingly diverse set of concerns.Concerns with Globalisation  Those expressing concern with globalization have come from a range of sectors of society. while others may merely be concerned about finding ways to better manage globalization processes.

The promise of export-led growth has failed to materialize in several places. That there is a gap between rich and poor is unquestionable. and the share of the population living in extreme poverty there rose from 42 to 47 percent between 1981 and 2001. Far from everyone has been a winner.efforts in sub-SaharanAfrica have produced only limited benefits.Three Primary Concerns are: Globalization Has Produced Uneven Results across Nations and People:-  Opponents describe the painful impact of foreign investment and trade liberalization on the people of the world.  For Example:.  Many opponents of globalization have claimed that there is a huge gap between the world’s rich and poor and that globalization has caused that gap to increase. but the evidence is perhaps not so clear regarding the charge that globalization has 17 increased this inequality. . they say.

18 . According to Martin Wolf. but he attributes that more to the nature of technological change than to globalization. Inequality has risen in some high-income countries.

the Labor Secretariat for the North American Free Trade Agreement (NAFTA) commissioned a report that found more than half of firms surveyed used threats to close U.  Indeed. 19 . ‘directly threatened to move to Mexico. .’ and 15 percent of firms. . • As reported by Alan Tonelson. when forced to bargain with a union. Globalization Has Had Deleterious Effects on Labor and Labor Standards: The issue of the impact of globalization on labor standards has become a concern of workers in the United States and other nations.  Workers in developed countries frequently voice concerns that their jobs will migrate to developing nations where there are lower standards. before NAFTA. actually closed part or all of a factory—triple the rate found in the late 1980s. operations as a tool to fight unionorganizing efforts.S. more than 10 percent of employers studied . and thus lower costs. ―In fact.

 A study by the Carnegie Endowment for International Peace found that Mexico’s agricultural sector. had lost 1. 20 . which provides most of the country’s employment.3 million jobs in the first decade since NAFTA was implemented.

trucking.  A difficulty caused by the North American Free Trade Agreement and the maquiladora program that began before NAFTA has been the substantial increases in ground. Globalization Has Contributed to a Decline in Environmental and Health Conditions: Regarding concerns of antiglobalization forces that globalization contributes to declining environmental standards. and air pollution along the Mexico–U. 21 .  Damage to the environment has been caused by the many new production facilities. water supply.  Some of NAFTA’s rules on trade in services may cause governments to weaken environmental standards for sometimes hazardous industries like logging.S. border. water. and real estate development.

under liberalized rules regarding the globalization of trade and investment. Protesters have also claimed that. 22 . businesses have an incentive to move their highly polluting activities to nations that have the least rigorous environmental regulations or a lower risk of liability associated with operations that can create environmental or health-related problems.

Perhaps surprisingly. markets for other products are being created. Growth and the economies of some nations where they are not doing business 23 . economic growth in a nation causes markets for some products to be lost forever while. this does not mean that equally good opportunities exist for all kinds of business.Data from sources such as the Human Development Report indicate that from a macro perspective. markets around the world are growing. • New Market Creation:. simultaneously. They find the markets outside the home country with a rising gross domestic product (GDP) per capita and population g are growing at a considerably faster rate than is the economy of their own market. However.Managers are always under pressure to increase the sales and profits of their firms.Motives for Entering Foreign Markets Following are the reasons international firms enter foreign markets: Increase Profits and Sales Enter new firms:.

however. As economic development continues. 24 . managers see profit-making opportunities in (1) producing locally the kinds of consumer goods that require simple technology or (2) assembling from imported parts the products that demand a more advanced technology.

such as the legal and political situations 25 . When you examine the low GDP per capita and negative growth rates of many of the African nations. market analysts will investigate other factors. but many of them are growing at a faster rate than is the home market. you realize why foreign direct investment in that entire continent is so low. Faster-Growing Markets:. Clearly.Not only are new foreign markets appearing.

Interestingly. 26 . • Improved Communications:.the ability to communicate rapidly and less expensively with customers and subordinates by electronic mail. growth rate for the period 1990–2007. wireless and wired telephones.S. 83 of the 182 countries in the 2009 Human Development Report for which data were available (46 percent) had average annual GDP per capita growth rates that were higher than the U. and videoconferencing has given managers confidence in their ability to control foreign operations.

customers in the United States e-mail their problems to India. For their work. Now.• The clients of numerous Indian software companies are in the United States. software teams were required to fly back and forth between the two countries. Indian software engineers often receive only 15 to 20 percent as much pay as do their American counterparts 27 . at the end of the day. A few years ago.

• Obtain Greater Profits:. Another factor that can positively affect the cost of goods sold is the inducements—such as reduced taxes or subsidies for R&D—that some governments offer to attract new investments.Increasing total sales by exporting not only will reduce research and development (R&D) costs per unit but also will make other economies of scale possible. and often conditions are such that a firm can do both. • Greater Revenue:. 28 . the firm may be able to obtain a better price for its goods or services.greater profits may be obtained by either increasing total revenue or decreasing the cost of goods sold.Where there is less competition. Increasingly. • Lower Cost of Goods Sold:. firms are also obtaining greater revenue by simultaneously introducing products in foreign markets and in their domestic markets as they move toward greater globalization of their operations.

• Higher Overseas Profits as an Investment Motive:. Business International. reported that 90 percent of 140 F ortune 500 companies surveyed had achieved higher profitability on foreign than on domestic assets 29 .There is no question that greater profits on overseas investments has been a strong motive for going abroad. for example.

. accounting. • Using Foreign Production to Lower Costs:. marketing research. advertising. Profits. banking. Service companies (e.a firm will set up an operation in the home country of a major competitor with the idea of keeping the competitor so occupied defending that market that it will have less energy to compete in the firm’s home country. law) will establish foreign operations in markets where their principal accounts are located to prevent competitors from gaining access to those accounts.A company may go abroad to protect its domestic market when it faces competition from lower-priced foreign imports.Protect Markets. • Attack in Competitor’s Home Market:. and Sales • Protect Domestic Market by Following Customers Overseas:. a firm will go abroad to protect its home market. They know that once a competitor has been able to demonstrate to top management what it can do by servicing a foreign subsidiary.Frequently.g. 30 .

if the final product requires considerable labor in the final assembly.• Managers may decide to produce certain components abroad and assemble them in the home country. The importers may have sufficient local currency but may be facing delays in buying foreign exchange (currency) from the government’s central bank. 31 . it may send the components overseas for this activity. If the advantages of making the investment outweigh the disadvantages. the company may decide to protect this market by producing locally.Changing the method of going abroad from exporting to overseas production is often necessary to protect foreign markets • Lack of Foreign Exchange:. or.One of the first signs is a delay in payment by the importers. • Protect Foreign Markets:.

such as filling stations and heating-oil distributors. to guarantee a market for their crude oil at more favourable prices. 32 . it still may be forced to set up a plant in the market if competitors have also noticed their export volumes will support local production.• Local Production by Competitors:. management must decide rapidly whether to follow suit or risk losing the market forever.While a firm may enjoy a growing export business and prompt payments. If a competing firm moves to put up a factory in the market. • Downstream Markets:.A number of Organization of Petroleum Exporting Countries (OPEC) nations have invested in refining and marketing outlets.

SEVEN DIMENSIONS FOR GLOBALIZING A BUSINESS In organizing their international activities. 33 . there are at least seven dimensions along which management can globalize : (1) Product (2) Markets (3) Promotion (4) Where value is added to the product (5) Competitive strategy. (6) Use of non-home-country personnel (7) Extent of global ownership in the firm.

34 .

35 .

36 .