International Environment

and Management
Lecture 1
 LEARNING OUTCOME:
• Define globalization and international business and
explain how they affect each other
• Grasp why companies engage in international
business and why its growth has accelerated
• Illustrate the different ways a company can
accomplish its global objectives
 Introduction
• International business consists of all commercial
transactions including
– sales,
– investments,
– and transportation
• that take place between two or more countries
• increasingly foreign countries are a source of both
production and sales for domestic companies
 Introduction
• Globalization is the widening set of interdependent
relationships among people from different parts of a world
divided into nations

• The term sometimes refers to the elimination of barriers to

international movement of goods, services, capital,
technology, and people that influence the integration of
world economies.

– Example: Boeing 777, a commercial jet airliner have Eight

Japanese suppliers, one supplier in Singapore & three
suppliers in Italy.
 Tesco’s unsuccessful US entry
• Tesco PLC, the third-largest retailer in the
world, entered the US market in 2006.
• Was the Tesco's problems in the United States
a result of poor strategy?
 REASONS
• By not partnering or hiring local executives,
Tesco missed the opportunity to learn more
about the habits and needs of target
customers.
• Tesco has listened to its customers, learned
from its mistakes, and made appropriate
midcourse corrections.
 FDI – Foreign Direct Investment
• TRENDS
 REGIONAL TRADE BLOCS
• A trade bloc is a type of intergovernmental
agreement, often part of a regional
intergovernmental organization, where
regional barriers to trade, (tariffs and non-
tariff barriers) are reduced or eliminated
among the participating states.
• Low inter trade barriers but independent to
make policy for non-members.
• Example – NAFTA (Canada, U.S. and Mexico)
 EUROPEAN UNION
• 27 member countries.
• Free trade area
• Single currency
• Free flow of goods and services
 NAFTA
Economic impact of The North American Free Trade
Agreement.
Canada: Trade with Mexico is growing, but still
represents a small part of Canada’s trade
The U.S.: NAFTA has had local effects especially
along the border, but had a small impact on the
overall U.S economy
Mexico: NAFTA has had an important
impact on trade flows and solidified
economic reforms
 Double Taxation Treaties
• Double Taxation Treaties are conventions
between two countries that aim to eliminate
the double taxation of income arising in one
territory and paid to residents of another.
Over 1,300 Double Taxation Conventions exist
world-wide. The UK has one of the largest
networks with more than 100.
 India-Mauritius tax treaty
• The protocol gives India the right to tax capital gains on
transfer of Indian shares acquired on or after 1 April 2017

• The tax treaty between India and Mauritius was signed in

1982. The treaty provides for a capital gains tax exemption to
a Mauritius resident on transfer of Indian securities.

• Mauritius became a favorite jurisdiction for channeling

investments into India.
 Cont’d
• The protocol gives India the right to tax capital gains on transfer of Indian
shares acquired on or after 1 April 2017.

• Existing investments will be grandfathered.

• Further, the Protocol provides for a two year transition period upto 31
March 2019 during which the tax rates will be 50% of the prevailing
domestic tax rates.

• After 31 March 2019, tax will be charged at full domestic tax rates. Capital
gains on derivatives and fixed income securities will continue to be
exempt.
Flow of International Trade
Factors in International Business Operations
 Forces Driving Globalization
1. Increase in and application of technology
2. Liberalization of cross-border trade and resource
movements
3. Development of services that support international
business
4. Growth of consumer pressures
5. Increased global competition
6. Changing political situations and government
policies
7. Expanded cross-national cooperation
 Costs of Globalization
• Threats to national sovereignty
– lose freedom to “act locally”
• Economic growth and environmental stress
– growth consumes nonrenewable natural
resources and increases environmental damage
• Growing income inequality and personal
stress
– promotes global superstars at the expense of
others
 Costs of Globalization
• Offshoring, a type of outsourcing, involves the
transferring of production abroad
– it can be beneficial because it reduces costs
– but, it also means that jobs move abroad
• Yet, offshoring may also create new, better
jobs at home
– Call centers and Back office operation jobs are
being outsourced to developing countries.
 Why Companies Engage in IB
• To expand sales
– pursuing international sales increases the potential market
and potential profits
• To acquire resources
– may give companies lower costs, new and better products,
and additional operating knowledge
• To diversify or reduce risks
– international operations may reduce operating risk by
smoothing sales and profits, preventing competitors from
gaining advantage
 Modes of Operations in IB
• Merchandise exports
– goods that are sent out of a country
• Merchandise imports
– goods that are brought into a country
• Sometimes referred to as visible exports and
imports
 Modes of Operations in IB
• Service exports
– provider and receiver of payment
• Service imports
– recipient and payer of payment
• Examples
– Tourism and transportation
– Service performance
• turnkey operations and management contracts
– Asset use
• licensing and franchising
 Modes of Operations in IB
• Investments
– Foreign Direct Investment (FDI)
• investor takes a controlling interest in a foreign
company
– joint venture
– Portfolio Investment
• a non-controlling financial interest in another entity
– Mutual funds often include international companies
 Modes of Operation in IB
• Collaborative arrangements
– Joint ventures (Max and Bupa Finance: Max Bupa)
– Licensing arrangements (Apple and Microsoft)
– Management contracts (OYO)
– Minority ownership
– Long-term contractual arrangements
• Strategic alliance
– companies that work together, but the agreement is
critical to at least one partner
– an agreement that does not involve joint ownership
Types of International Business

We tend to read the following terms and think they

refer to any company doing business in another
country.
– International
– Multinational
– Transnational
– Global
Each term is distinct and has a specific meaning which
define the scope and degree of interaction with their
operations outside of their “home” country.
• International companies are importers and exporters, they have no
investment outside of their home country.
• Ex: Trading houses
• Multinational companies have investment in other countries, but
do not have coordinated product offerings in each country. More
focused on adapting their products and service to each individual
local market.
• Ex: Toyota is a multinational company then it has its base in Japan and in
other countries such as Malaysia or India products just assembles with the
given plan to them from Japan.
• Global companies have invested and are present in many countries.
They market their products through the use of the same
coordinated image/brand in all markets. Generally one corporate
office that is responsible for global strategy. Emphasis on volume,
cost management and efficiency.
• Ex: Oracle, SAP
• Transnational companies are much more complex organizations.
They have invested in foreign operations, have a central corporate
facility but give decision-making, R&D and marketing powers to
each individual foreign market.
• Ex: coca cola or McDonald which in some Arabian countries to eat pork is forbidden and
branches of McDonald remove burgers with pork from their menu or make some changes in
integrates of them or we can say in some countries like turkey people prefer drinks with less
sugar or in Dubai peoples cuisine is more sugar in drinks, so here branches make some changes
in their products too keep their customers all around the world.
 Why IB is Different
• The external environment affects a company’s
international operations
• Managers must understand social science
disciplines and how they affect functional
business fields
• Consider
– Physical factors
– Social factors
– Competitive factors
 Physical and Social Factors
• Geographic influences
– natural conditions influence business locations
• Political policies
– countries determine where and how business occurs within their
borders
• Legal policies
– influence how a company operates
• Behavioral factors
– may require adaptation in to local conditions
• Economic forces
– explain differences in costs, currency values, market size
 The Competitive Environment
• Competitive strategy for products
– Cost strategy (by having the lowest cost of operation
or best value e.g. walmart, divorce attorney)
– Differentiation strategy (Apple, Insurance, Security
Service and etc. )
– Focus strategy (Netflix, Mercedes)
• Company resources and experience
– market leaders have more resources for international
operations
• Competitors faced in each market
– local or international
 The Competitive Environment
• So, a company’s competitive strategy
influences how and where it can best operate
• Its competitive situation may differ from
country to country in terms of its relative
strength and which competitors it faces
 Ques
• Which corporate strategy is best for
customers who wants to reduce fat?
• A. Cost
• B. Focus
• C. Differnetiation
• D. None
 Ques
In the case where an organisation acquires its
supplier, this is an example of
• A.Horizontal integration
• B.Forwards vertical integration
• C.Backwards vertical integration
• D.None of the above