INTERNATIONAL BUSINESS

TOPIC I
INTRODUCTION TO INTERNATIONAL
BUSINESS
 DEFINITION
• Definition: International Business is the process of
focusing on the resources of the globe and objectives
of the organisations on global business opportunities
and threats.
• International business defined as global trade of
goods/services or investment.
• International Business conducts business transactions
all over the world. These transactions include the
transfer of goods, services, technology, managerial
knowledge, and capital to other countries.
International business involves exports and imports
 Features of IB
• Large scale operations : In international business, all
the operations are conducted on a very huge scale.
Production and marketing activities are conducted on a
large scale
• Intergration of economies : International business
integrates (combines) the economies of many
countries. This is because it uses finance from one
country, labour from another country, and
infrastructure from another country. It designs the
product in one country, produces its parts in many
different countries and assembles the product in
another country. It sells the product in many countries,
i.e. in the international market.
 Features of IB
• Dominated by developed countries and MNCs :
International business is dominated by developed countries
and their multinational corporations (MNCs). At present,
MNCs from USA, Europe and Japan dominate (fully control)
foreign trade. This is because they have large financial and
other resources. They also have the best technology and
research and development (R & D). They have highly skilled
employees and managers
• Benefits to participating countries : International business
gives benefits to all participating countries. However, the
developed (rich) countries get the maximum benefits. The
developing (poor) countries also get benefits. They get
foreign capital and technology. They get rapid industrial
development. They get more employment opportunities
 Features of IB
• Keen competition : International business has to
face keen (too much) competition in the world
market. The competition is between unequal
partners i.e. developed and developing countries

• Special role of science and technology:

International business gives a lot of importance
to science and technology. Science and
Technology (S & T) help the business to have
large-scale production
 Features of IB
• International restrictions : International business faces
many restrictions on the inflow and outflow of capital,
technology and goods. Many governments do not
allow international businesses to enter their countries.
They have many trade blocks, tariff barriers, foreign
exchange restrictions,
• Sensitive nature : The international business is very
sensitive in nature. Any changes in the economic
policies, technology, political environment, etc. has a
huge impact on it. Therefore, international business
must conduct marketing research to find out and study
these changes.
 Need for International Business
1. To achieve higher rate of profits
2. Expanding the production capacity beyond the demand of the domestic
country
3. Severe competition in the home country
4. Limited home market
5. Political conditions
6. Availability of technology and managerial competence
7. Cost of manpower, transportation
8. Nearness to raw material
9. Liberalisation, Privatisation and Globalisation (LPG)
10. To increase market share
11. Increase in cross border business is due to falling trade barriers (WTO),
decreasing costs in telecommunications and transportation; and freer capital
markets
Importance of IB
 Importance of IB
• Earn foreign exchange : International business
exports its goods and services all over the world.
This helps to earn valuable foreign exchange. This
foreign exchange is used to pay for imports
• Optimum utilisation of resources : International
business makes optimum utilisation of resources.
This is because it produces goods on a very large
scale for the international market. International
business utilises resources from all over the world
 Importance of IB
• Achieve its objectives : International business
achieves its objectives easily and quickly. The
main objective of an international business is to
earn high profits. This objective is achieved easily.
• To spread business risks : International business
spreads its business risk. This is because it does
business all over the world. So, a loss in one
country can be balanced by a profit in another
country.
 Importance of IB
• Improve organisation's efficiency : International
business has very high organisation efficiency. This is
because without efficiency, they will not be able to face
the competition in the international market. So, they
use all the modern management techniques to
improve their efficiency. They hire the most qualified
and experienced employees and managers.
• Get benefits from Government : International business
brings a lot of foreign exchange for the country.
Therefore, it gets many benefits, facilities and
concessions from the government
 Importance of IB
• Expand and diversify : International business can
expand and diversify its activities. This is because
it earns very high profits. It also gets financial
help from the government.
• Increase competitive capacity : International
business produces high-quality goods at low cost.
It spends a lot of money on advertising all over
the world. It uses superior technology,
management techniques, marketing techniques,
etc. All this makes it more competitive.
 Reasons for Recent International Business
Growth

1. Expansion of technology
2. Business is becoming more global because
• Transportation is quicker
• Communications enable control from afar
• Transportation and communications costs are more
conducive for international operations
3. Liberalization of cross-border movements
4. Lower Governmental barriers to the movement of
goods, services, and resources enable Companies to take
better advantage of international opportunities
 Advantages of IB
• Product Flexibility
• Less Competition
• Protection From National Trends and Events
• Learning New Methods
• Faster growth
• Access to cheaper inputs
• Increased quality and efficiency
• New market opportunities
• Diversification
 Scope of IB

• 1. International Marketing
• 2. International Finance and Investments
• 3. Global HR
• 4. Foreign Exchange
 Domestic business V/s International
business
International business
1.It is extension of Domestic
Business and Marketing
Principles remain same
2. Difference is customs,
cultural factors
3. Conduct and selling
procedure changes
Domestic business
1. The Domestic Business
Follow the marketing
Principles
2. No such difference. In a
large countries languages like
India, we have many languages
3. Selling Procedures remain
unaltered
 Domestic business V/s International
business
International business
4. Working environment and
management practices change to
suit local conditions
5. Will have to face restrictions in
trade practices, licenses and
government rules.
6. Long Distances and hence
more transaction time
7. Currency, interest rates,
taxation, inflation and economy
have impact on trade
Domestic business
4. No such changes are
necessary
5. These have little or no
impact on Domestic trade
6. Short Distances, quick
business is possible
7. Currency, interest rates,
taxation, inflation and
economy have little or no
impact on Domestic Trade
 INTERNATIONAL
BUSINESSAPPROACHES
• International business approaches are similar to
the stages of internationalization or globalization.
Douglas Wind and Pelmutter advocated four
approaches of international business
• Ethnocentric Approach
• Polycentric Approach
• Regiocentric Approach
• Geocentric approach
 Ethnocentric Approach
• The domestic companies normally formulate their strategies. Their
product design and their operations towards the national markets,
customers and competitors. But, the excessive production more
than the demand for the product, either due to competition or due
to changes in customer preferences push the company to export
the excessive production to foreign countries.
• The domestic company continues the exports to the foreign
countries and views the foreign markets as an extension to the
domestic markets just like a new region
• The executives at the head office of the company make the
decisions relating to exports and, the marketing personnel of the
domestic company monitor the export operations with the help of
an export department
 Ethnocentric Approach
• The company exports the same product designed for
domestic markets to foreign countries under this
approach. Thus, maintenance of domestic approach
towards international business is called ethnocentric
approach
• Conclusion
• Under ethnocentric approach, the domestic
companies view foreign markets as an extension to
domestic market
• E.g: Mapro, Haldiram
 Polycentric Approach
• The domestic companies, which are exporting
to foreign countries using the ethnocentric
approach, find at the latter stage that the
foreign markets need an altogether different
approach.
• Then, the company establishes a foreign
subsidiary company and decentralists all the
operations and delegates decision-making and
policy-making authority to its executives.
 Polycentric Approach
• In fact, the company appoints executives and personnel
including a chief executive who reports directly to the
Managing Director of the company.
• Company appoints the key personnel from the home country
and the people of the host country fill all other vacancies
• Under polycentric approach, companies establish foreign
subsidiary and empowers its executives
• Wal-Mart is seen as an American company because its
headquarters are located in America. Its current policy that
recruits from the home country are hired, and trained for key
executive position in the organization
 Regiocentric Approach
• The company after operating successfully in a
foreign country, thinks of exporting to the
neighbouring countries of the host country
• At this stage, the foreign subsidiary considers
the regions environment(for example, Asian
environment like laws, culture, policies
etc.) for formulating policies and strategies.
 Regiocentric Approach
• However, it markets more or less the same
product designed under polycentric approach
in other countries of the region, but with
different market strategies
• Under regiocentric approach subsidiaries
consider regional environment for
policy/strategy formulation
• Eg:- Pepsi and Coca-Cola
 Geocentric approach
• Under this approach, the entire world is just like a single
country for the company. They select the employees from
the entire globe and operate with a number of subsidiaries.
• The headquarter coordinates the activities of the
subsidiaries. Each subsidiary functions like an independent
and autonomous company in formulating policies,
strategies, product design, human resource policies,
operations etc
 Geocentric approach
• Conclusion
• Under geocentric approach, companies view the entire world
as a single country
• Colgate Palmolive is an example of a company that follows the
geocentric approach. It has been operating internationally for
more than 50 years, and its products are household names in
more than 170 countries. 60 per cent of the company's
expatriates are from countries other than the US. All the top
executives speak at least two languages, and important
meetings routinely take place all over the globe.
 Internationalization stage
• Most companies pass through different stages of
internationalization.
• A firm which is entirely domestic in its activities
normally passes through different stages of
internationalization before it becomes a truly global
one.
• Firms overseas business initially starts with a low
degree of commitment or involvement; but they
gradually develop a global outlook and embark upon
overseas business in a big way
 Important stages
• Domestic:
• The stage-one company is domestic in its focus, vision, and
operations. Its orientation is ethnocentric.
• This company focuses upon domestic markets, domestic
suppliers, and domestic competitors
• The environmental scanning of the stage-one company is
limited to the domestic, familiar, home-country environment.
• The company operates domestically because it never
considers the alternative of going international. The growing
stage-one company will, when it reaches growth limits in its
primary market, diversify into new markets, products, and
technologies instead of focusing on penetrating international
markets.
 Stage Two—International
• The stage-two company extends marketing, manufacturing, and other
activity outside the home country. When a company decides to pursue
opportunities outside the home country, it has evolved into the stage-two
category.
• In spite of its pursuit of foreign business opportunities, the stage-two
company remains ethnocentric, or home country oriented, in its basic
orientation
• The marketing strategy of the stage-two company is extension; that is,
products, advertising, promotion, pricing, and business practices
developed for the home-country market are “extended” into markets
around the world
• The focus of the international company is on extending the home-country
marketing mix and business model
 Stage Three—Multinational
• the stage-two company discovers that differences in markets
around the world demand an adaptation of its marketing mix in
order to succeed.
• When a company decides to respond to market differences, it
evolves into a stage-three multinational that pursues a multi-
domestic strategy.
• The focus of the stage-three company is multinational or in
strategic terms, multi- domestic. (That is, this company formulates a
unique strategy for each country in which it conducts business.) The
orientation of this company shifts from ethnocentric to polycentric
• The stage-three marketing strategy is an adaptation of the domestic
marketing mix to meet foreign preferences and practices.
• E.g: Toyoto not so famous Toyopet in USA in 1960’s
 Stage Four—Global
• The global company will have either a global marketing strategy or a
global sourcing strategy, but not both
• It will either focus on global markets and source from the home or a
single country to supply these markets, or it will focus on the
domestic market and source from the world to supply its domestic
channels.
• Examples of the stage-four global company are Harley Davidson and
the Gap. Harley is an example of a global marketing company.
Harley designs and manufactures super heavyweight motorcycles in
the United States and targets world markets.
• The stage-four global company strategy is a winning strategy if a
company can create competitive advantage by limiting its
globalization of the value chain.
 Stage Five—Transnational
• The stage-five company is geocentric in its orientation:
• It recognizes similarities and differences and adopts a worldview. This
is the company that thinks globally and acts locally.
• It adopts a global strategy allowing it to minimize adaptation in
countries to that which will actually add value to the country customer.
• This company does not adapt for the sake of adaptation. It only adapts
to add value to its offer.
• The key assets of the transnational are dispersed, interdependent, and
specialized.
• Take R&D, for example. R&D in the transnational is dispersed to more
than one country. The R&D activities in each country are specialized
and integrated in a global R&D plan.
 Characteristics of Transnational
Company
• Geocentric Orientation: global Integration
• Scanning and Information Collection world wide
• Vision and aspiration: globe head
• Geographic scope:
• Operating style: key operations
• Adaptation
• Creation through extension
• HRM policy
• Purchasing/ manufaturing
 Domestic business V/s International
business
International business
8. MNC’s have perfected
principles, procedures and
practices at international level
9. MNCs take advantage of
location economies wherever
cheaper resources available
10. Large companies enjoy
benefits of experience curve
11. High Volume cost
advantage
Domestic business
8. No such experience or
exposure
9. No such advantage once
plant is built it cannot be easily
shifted.
10. It is possible to get this
benefit through collaborators.
11. Cost Advantage by
automation, new methods etc.
 Domestic business V/s International
business
International business Domestic business
11. Cost Advantage by 11. No such advantage
automation, new methods etc. 12. No such advantage
12. Global business seeks to 13. No such advantage and get
create new values and global competition from some
brand image. spurious or SSI Unit who get
13. Can Shift production bases patronage of Government.
to different countries
whenever there are problems
in taxes or markets